This week is Pension Awareness Week 2026! Running from 14th to 18th September, Pension Awareness Week is an annual campaign designed to help people better understand their pensions and take control of their retirement planning.
Here at Danbro, we’ve worked with contractors for over two decades, and something we regularly find is that many contractors still believe their options are more limited, or put retirement saving on hold in favour of maximising their take-home pay. It’s an easy trap to fall into; the flexibility of contracting can come with periods of changing or unstable income, short-term assignments and shifting priorities, relegating long-term retirement planning to the back-burner.
The good news? Contractors actually have many more options than they realise! In honour of Pension Awareness Week, this blog explores some of the pension options available to you as a contractor in the UK.
In fact, the most recent Family Resources Survey showed that just 21% of those deemed ‘self-employed’, participated in a pension scheme, compared to 55% of all working age adults, and 80% for employees. A drilldown on this data also reveals that less than 3% of those self-employed under the age of 45 participated.
But what could be driving this disparity?
The obvious answer points to the fact that contractors are often outside the scope of auto-enrolment. Unlike permanent employees, who get automatically enrolled into a workplace pension, with deductions taken in the background without any action from the employee, contractors often have to arrange their own pension setup.
Interestingly however, it seems that contractors are in fact aware that they ought to be paying into a pension, but don’t for a variety of reasons.
Lottie Hutchins provides a contractor’s perspective in her article on ContractorUK, citing constantly shifting priorities, uncertainties around monthly income levels, and high administrative workload, as she writes ‘every time the thought surfaces, something more urgent pushes it back down‘. Furthermore, when cashflow can fluctuate, many contractors look to prioritise take-home pay rather than retirement certainty, instead using the likes of ISAs, (thus missing out on powerful rates of tax relief).
An additional factor appears to the perceived complexity of arranging a suitable pension scheme. This is because the way you get paid can vary from contract to contract, especially if they have different IR35 determinations. Finding solution that balances administrative ease with tax efficiency can quickly become overwhelming, so we’ve listed some of the pension options available to contractors below.
Please note, this list is purely for general information purposes and does not constitute financial, tax or investment advice. The information is based on our understanding of current legislation and HMRC guidance, which may change. Individual circumstances vary, and you should seek professional financial advice before making decisions about your pension or retirement planning.
You don’t need to do anything to set-up this type of pension – the umbrella company will do it for you. This makes it one of the simplest pension arrangements for contractors, and should also be familiar to anyone who has had a permanent role. Unlike Agency PAYE, you will only have one pension across all of the contracts you have during your employment with the umbrella, due to the continuity of the overarching contract of employment. This means less orphaned pension pots to track down in the future.
Did you know: Over £30 billion is estimated to be sat in old, lost or forgotten pension pots!
You aren’t required to keep your funds in the umbrella’s workplace pension, either. You can usually transfer out to a pension of your choice.
Of course, if you wish to opt out, you can do so, however your employer must enrol you first before you can opt back out.
Here at Danbro Umbrella, our workplace pension scheme is the Danbro Group SIPP. We’ll explain more about what a Self-Invested Personal Pension (SIPP) is later on, however in a nutshell, it provides a flexible, low-charge, tax-efficient way to save for the retirement you want. Learn more about the Danbro Group SIPP here.
This can be a tax efficient way of saving for later life, as salary sacrifice lowers your taxable income, meaning income tax and employees national insurance savings. Remember how we said employer’s pension contributions are taken from the contracted rate? Well, the same is true of employers NI contributions, which means you save on those, too!
This extra tax advantage makes salary sacrifice a uniquely powerful savings method for inside IR35 contractors who use an umbrella company.
What’s more, if you’re a higher earner, you can use salary sacrifice to bring your taxable income under £100,000 to avoid that pesky 60% tax trap. So, while your take-home pay may be lowered, at least more of it will be going into a pension you can use in retirement, rather than straight to the taxman.
However, this tax break won’t be around for ever – in the 2025 Budget, the Chancellor announced that from 2029, employees and employers will not make any NI savings on any pension contributions salary sacrificed by employees into their pension beyond £2,000 per annum. This does not change how much can go into pensions via salary sacrifice schemes, just how much national insurance relief is available.
Here at Danbro Umbrella, we offer a pension salary sacrifice facility on our Danbro Umbrella PLUS service. So, if you would like to make the most of pension salary sacrifice, join Danbro Umbrella PLUS.
Don’t be put off by the acronym – a ‘SIPP’ stands for a self-invested personal pension. A SIPP is a type of personal pension which can offer you greater control and flexibility when it comes to your retirement planning.
We all want to become more confident when it comes to our financial futures, and a SIPP can be a brilliant way to achieve this. Though not suitable for everyone, a SIPP gives you the freedom to take control when it comes to your pension.
SIPPs can be a great option if you’re looking to consolidate your retirement savings and to have everything in one place. SIPPs can also be a good choice when it comes to fees. Some pensions, especially older ones, have higher charges or fixed policy fees. By bringing everything together in a SIPP, you could reduce the cost of managing your pension, so more of your money stays in your pot. Overpaying on fees/charges can make a big dent on your wealth if left unchecked.
In short, a SIPP can offer you a broad range of investment options which puts you in the driver’s seat when it comes to your pension. You have to be comfortable making your own investment decisions, though, so it’s always worth keeping that in mind. Investment value can go up or down and you could get back less than you invest. We recommend seeking advice from a suitably qualified financial adviser before making any decisions.
This is why starting early can be so valuable. Even relatively modest contributions made consistently throughout your career can potentially grow into a substantial pension pot, whereas delaying contributions may require much larger payments later on to achieve a similar outcome.
The amount you ultimately receive will depend on factors such as contributions, investment performance and charges, but generally speaking, the longer your money remains invested, the greater the opportunity for compound growth to work in your favour.
Furthermore, as we’ve discussed here, pensions can also benefit from valuable tax advantages depending on how contributions are made.
Here at Danbro, we’ve worked with contractors for over two decades, and something we regularly find is that many contractors still believe their options are more limited, or put retirement saving on hold in favour of maximising their take-home pay. It’s an easy trap to fall into; the flexibility of contracting can come with periods of changing or unstable income, short-term assignments and shifting priorities, relegating long-term retirement planning to the back-burner.
The good news? Contractors actually have many more options than they realise! In honour of Pension Awareness Week, this blog explores some of the pension options available to you as a contractor in the UK.
Why Do Contractors Sometimes not Pay Into Their Pension?
According to a report by the Second Pensions Commission, ‘self-employed people remain the group least likely to participate in pensions saving.’In fact, the most recent Family Resources Survey showed that just 21% of those deemed ‘self-employed’, participated in a pension scheme, compared to 55% of all working age adults, and 80% for employees. A drilldown on this data also reveals that less than 3% of those self-employed under the age of 45 participated.
But what could be driving this disparity?
The obvious answer points to the fact that contractors are often outside the scope of auto-enrolment. Unlike permanent employees, who get automatically enrolled into a workplace pension, with deductions taken in the background without any action from the employee, contractors often have to arrange their own pension setup.
Interestingly however, it seems that contractors are in fact aware that they ought to be paying into a pension, but don’t for a variety of reasons.
Lottie Hutchins provides a contractor’s perspective in her article on ContractorUK, citing constantly shifting priorities, uncertainties around monthly income levels, and high administrative workload, as she writes ‘every time the thought surfaces, something more urgent pushes it back down‘. Furthermore, when cashflow can fluctuate, many contractors look to prioritise take-home pay rather than retirement certainty, instead using the likes of ISAs, (thus missing out on powerful rates of tax relief).
An additional factor appears to the perceived complexity of arranging a suitable pension scheme. This is because the way you get paid can vary from contract to contract, especially if they have different IR35 determinations. Finding solution that balances administrative ease with tax efficiency can quickly become overwhelming, so we’ve listed some of the pension options available to contractors below.
Please note, this list is purely for general information purposes and does not constitute financial, tax or investment advice. The information is based on our understanding of current legislation and HMRC guidance, which may change. Individual circumstances vary, and you should seek professional financial advice before making decisions about your pension or retirement planning.
Option 1: Auto-Enrolment Workplace Pension Through an Umbrella Company
If you are contracting through an umbrella company, for example on an inside IR35 Contract, you are treated as an employee of the umbrella company for tax purposes. This means you will be within the scope of auto-enrolment, so will be automatically enrolled into the umbrella company’s workplace pension scheme provided you meet eligibility criteria. Contributions are made in a similar fashion to a permanent role – deducted automatically in the background with each payslip. It’s important to note that employer’s pension contributions are taken from the contracted rate, and the employee’s deductions are taken from your gross pay. The contracted rate when working through an umbrella company should be uplifted over an equivalent permanent role to account for this.You don’t need to do anything to set-up this type of pension – the umbrella company will do it for you. This makes it one of the simplest pension arrangements for contractors, and should also be familiar to anyone who has had a permanent role. Unlike Agency PAYE, you will only have one pension across all of the contracts you have during your employment with the umbrella, due to the continuity of the overarching contract of employment. This means less orphaned pension pots to track down in the future.
Did you know: Over £30 billion is estimated to be sat in old, lost or forgotten pension pots!
You aren’t required to keep your funds in the umbrella’s workplace pension, either. You can usually transfer out to a pension of your choice.
Of course, if you wish to opt out, you can do so, however your employer must enrol you first before you can opt back out.
Here at Danbro Umbrella, our workplace pension scheme is the Danbro Group SIPP. We’ll explain more about what a Self-Invested Personal Pension (SIPP) is later on, however in a nutshell, it provides a flexible, low-charge, tax-efficient way to save for the retirement you want. Learn more about the Danbro Group SIPP here.
Option 2: Salary Sacrifice Pension Contributions Through an Umbrella Company
Another option available to umbrella workers is salary sacrificing additional pension contributions. This is where you choose to put more of your pay into your pension, in exchange for less take-home cash pay.This can be a tax efficient way of saving for later life, as salary sacrifice lowers your taxable income, meaning income tax and employees national insurance savings. Remember how we said employer’s pension contributions are taken from the contracted rate? Well, the same is true of employers NI contributions, which means you save on those, too!
This extra tax advantage makes salary sacrifice a uniquely powerful savings method for inside IR35 contractors who use an umbrella company.
What’s more, if you’re a higher earner, you can use salary sacrifice to bring your taxable income under £100,000 to avoid that pesky 60% tax trap. So, while your take-home pay may be lowered, at least more of it will be going into a pension you can use in retirement, rather than straight to the taxman.
However, this tax break won’t be around for ever – in the 2025 Budget, the Chancellor announced that from 2029, employees and employers will not make any NI savings on any pension contributions salary sacrificed by employees into their pension beyond £2,000 per annum. This does not change how much can go into pensions via salary sacrifice schemes, just how much national insurance relief is available.
Here at Danbro Umbrella, we offer a pension salary sacrifice facility on our Danbro Umbrella PLUS service. So, if you would like to make the most of pension salary sacrifice, join Danbro Umbrella PLUS.
Option 3: Contributions from Your Limited Company for Outside IR35 Contractors
For contractors operating outside IR35 through their own limited company, pension contributions can be a tax-efficient way to save for retirement. Rather than extracting all company profits as salary or dividends, the company can make employer pension contributions directly into a personal pension or Self-Invested Personal Pension (SIPP). This can reduce the company’s taxable profits while allowing the full contribution to be invested for the future.What is a Self-Invested Personal Pension (SIPP) & How do they Differ from a Personal Pension?
We’ve mentioned SIPPs a few times throughout this article, but what actually are they? Camilla Esmund, Head of Investor Campaigns at interactive investor explains below.Don’t be put off by the acronym – a ‘SIPP’ stands for a self-invested personal pension. A SIPP is a type of personal pension which can offer you greater control and flexibility when it comes to your retirement planning.
We all want to become more confident when it comes to our financial futures, and a SIPP can be a brilliant way to achieve this. Though not suitable for everyone, a SIPP gives you the freedom to take control when it comes to your pension.
SIPPs can be a great option if you’re looking to consolidate your retirement savings and to have everything in one place. SIPPs can also be a good choice when it comes to fees. Some pensions, especially older ones, have higher charges or fixed policy fees. By bringing everything together in a SIPP, you could reduce the cost of managing your pension, so more of your money stays in your pot. Overpaying on fees/charges can make a big dent on your wealth if left unchecked.
In short, a SIPP can offer you a broad range of investment options which puts you in the driver’s seat when it comes to your pension. You have to be comfortable making your own investment decisions, though, so it’s always worth keeping that in mind. Investment value can go up or down and you could get back less than you invest. We recommend seeking advice from a suitably qualified financial adviser before making any decisions.
Why is Paying Into a Pension So Important?
One of the biggest advantages of pension saving is the amount of time your money has to grow. Contributions made into a pension are typically invested, meaning they have the potential to generate returns over many years. Those returns can then generate returns of their own, a process known as compound growth. Over time, this can have a significant impact on the size of your retirement fund.This is why starting early can be so valuable. Even relatively modest contributions made consistently throughout your career can potentially grow into a substantial pension pot, whereas delaying contributions may require much larger payments later on to achieve a similar outcome.
The amount you ultimately receive will depend on factors such as contributions, investment performance and charges, but generally speaking, the longer your money remains invested, the greater the opportunity for compound growth to work in your favour.
Furthermore, as we’ve discussed here, pensions can also benefit from valuable tax advantages depending on how contributions are made.
Pension Awareness Week – Resources to Take Control of Your Pension
The key purpose of pension awareness week is to empower savers to gain control and clarity around pensions. To that end, you can find useful resources such as a step-by-step pension checklist, live webinars and detailed guides on the official Pension Awareness Day website.Blog written by
Charlie Sturgess
Charlie is a Designer in Danbro's Marketing team. He is responsible for producing creative assets and content for use across the group's various channels.
His background is varied, having studied Design and English, and worked in the financial services as an administrator.
Outside of Danbro, Charlie can be found up a climbing wall, or watching the F1.