You’re working through an umbrella company. That means your pay and taxes are handled differently from a typical job. And yes, pensions are part of the mix. But they’re not always clear. Here’s what you need to know about workplace pensions as a contractor.
Who Gets Auto-Enrolled in a Pension?
You’ll be auto-enrolled into a pension if you’re between 22 and the State Pension age, work in the UK, and earn over £10,000 a year. That’s the rule, and your umbrella company has to follow it.
If you meet the criteria, the umbrella company must add you to a pension scheme, usually after 12 weeks. If you don’t want to stay in it, you can opt-out. But don’t rush that call. Your future self might thank you later.
What’s Auto-Enrolment and How Does It Work?
Auto-enrolment means your umbrella company signs you up for a pension without asking first. It’s part of the law for all employers in the UK, and umbrella firms count too.
You’ll get added automatically to a pension scheme. They usually use providers like NEST or Smart Pension. You’ll see money taken from your payslip. If you want out, you’ve got one month to tell the pension provider. If you change your mind later, you can rejoin. But they’ll likely auto-enrol you again in a few years because that’s how the system works.
What Do You and the Umbrella Pay?
You pay 5%, and your umbrella service provider adds 3% of your qualifying earnings to your pension. That’s the standard split under UK rules.
It comes straight from your payslip. You won’t have to transfer it yourself. The umbrella company sorts it out. The money goes into your pension pot every payday. The “qualifying earnings” usually mean anything you earn between £6,240 and £50,270 a year.
Here’s how it looks in practice:
| Gross Earnings | Employee Contribution (5%) | Employer Contribution (3%) | Total Added to Pension |
|---|---|---|---|
| £20,000 | £1,000 | £600 | £1,600 |
| £30,000 | £1,488 | £893 | £2,381 |
The bigger the qualifying earnings, the bigger the pot grows. But it’s not just about what you earn—it’s what you keep growing.
Use our umbrella calculator to find out the employer and employee pension contributions.
Can You Opt Out?
Yes, you can opt-out by contacting the pension provider directly within one month of enrolment. Your umbrella company can’t do it for you.
If you opt out early, your contributions get refunded. If you opt-out later, the money stays in the pot. You won’t get it back until retirement. Think twice before you opt-out. It’s easy to say no now and regret it later.
What’s the Deal with Salary Sacrifice?
Salary sacrifice means agreeing to lower your gross pay so more can go into your pension. It can also save on tax. It’s a smart way to boost your pot and reduce your tax bill.
Here’s the tradeoff: you give up a chunk of your salary before tax, which goes into your pension. Because it’s before tax, you pay less National Insurance and income tax. Some umbrella companies offer it. Some don’t. Ask yours if it’s an option.
Example: If you sacrifice £100 a month, it’s £100 going in—no tax taken out. Usually, you’d need to earn £125 to put £100 into a pension after tax.
If your umbrella company offers salary sacrifice and you can afford a smaller take-home now, it’s worth considering.
How Much Can You Put In?
The annual allowance is £60,000 or 100% of your earnings, whichever is lower. That’s the most you can add to your yearly pensions without tax penalties.
There’s also a thing called the “carry forward” rule. If you haven’t used all your allowance in the last 3 years, you can add more now—up to that limit.
No more lifetime allowance as of 2023. That rule got scrapped. So, you don’t need to worry about hitting a lifetime cap anymore.
Still, check with a tax advisor if you want to make big top-ups.
When Can You Use Your Pension?
You can usually start taking money from your pension at 55, rising to 57 in 2028. You don’t have to retire to use it, but you should have a plan.
At that age, you can take 25% of your pension tax-free. The rest gets taxed as income. You can take it as a lump sum or as regular payments. You choose what works for you.
If you keep working, your umbrella job can still pay into your pot. The longer you delay taking it, the more it can grow.
Who’s the Pension Provider?
Most umbrella companies use NEST, Smart Pension, or The People’s Pension. Your provider matters because they decide how your money gets invested.
A SIPP (Self-Invested Personal Pension) gives more control. You choose where the money goes. Stocks? Funds? You decide. But SIPPs cost more and need more attention.
If you’re using a standard scheme, you can still move the money later. Pensions are portable. If you switch umbrella companies or go limited, you don’t lose it.
What Should You Do Now?
First, check your payslip. Are you already paying into a pension? If yes, check your provider and how much you’re putting in. If not, ask your umbrella company why. You might not meet the criteria yet—or they might’ve missed something.
If you want to add more than the minimum, ask if salary sacrifice is available. It can make a difference over time.
And before you opt-out, think about how long you’ll contract, how much you’re saving elsewhere, and whether future-you will be glad you stayed in.
Pensions might feel like background noise, but they are part of your pay. Please don’t ignore them.
And one last thing—check your pension statement every year. You’d be surprised how quickly things can build up when you’re not looking.
