Are PAYE contractors entitled to a pension?

For those that don’t work under standard employment, pensions can be confusing. This is the case for PAYE contractors, and it often leads to them wondering where they stand with their pension options. The following guide will hopefully clear up the confusion and ensure your future is secured the right way with a good pension.

What is a PAYE contractor?

A PAYE (Pay As You Earn) contractor is represented by an agency. This agency is responsible for paying them the correct wage. This includes deducing the right levels of income tax and National Insurance contributions. These aspects are calculated and deducted from the PAYE contractor’s salary before they are paid.

Are PAYE contractors entitled to a pension?

In short, the answer is ‘Yes’. PAYE contractors and pensions go together, with those represented under the PAYE contractor umbrella having the same entitlements as any other employee. With that said, it’s not quite as straightforward as standard employees being automatically added to workplace pensions.

Workplace pensions for PAYE contractors

In the same way as a standard employee, workplace pensions function in much the same way for PAYE contractors. If enrolled, it involves the employer making pension contributions on behalf of the contractor. These contributions not only boost your pension pot but also help to trim your tax bill down.

Personal pensions for PAYE contractors

Rather than deal with terms set by employers, it is possible for PAYE contractors to set up their own personal pensions. This is a more straightforward approach if your work sees you regularly moving across different employers and contracts.

When it comes to pension options, a personal pension also gives you more control. Admittedly, you don’t receive employer contributions, but there are still tax benefits gained from contributing to a personal pension pot.

Alternatively, you can have both workplace pensions and a private pension working in conjunction with each other. You could view your private pension account as a main hub for all contributions. For example, you could transfer and consolidate all of your old pension pots into one place for greater control and visibility.

Auto-enrolment and employer contributions

If you are a registered PAYE employee, you can be auto-enrolled into the workplace pension scheme used by your employer. With that said, there are certain points that need to be covered before auto-enrolment – and subsequent employer contributions – occurs.

First of all, you are entered into a 12-week postponement period once registered as a PAYE employee. During these 12 weeks, contracts are assessed to decide if you should be enrolled in the employer’s pension scheme or not.

Following the postponement period, the employer takes a closer look at your eligibility for being added to their workplace pensions scheme. To be enrolled, these are the following points you need to meet:

• 22 years or older
• Currently below the State Pension age
• Working in the UK
• Earning £805 or more per week

If those requirements are met, a minimum of 3% of your salary (pre-tax) will be added to a pension by your employer. You can always contact your employer for more details about how their pension scheme functions.

Retirement savings for PAYE contractors

PAYE contractors are no different from other workers; they should do all they can to build their retirement savings. With the right pension plans, they are able to save more for less.

Conclusion

To answer the main question posed again, PAYE contractors are entitled to a pension. All workers, from regular employees to those under the self-employment umbrella, are rightfully allowed to set up and contribute to a pension, whether it is a workplace or personal pension. So if you are a PAYE contractor, ensure you have something set up today.

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

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