Business Financial Planning :  Stakeholder Pensions - Why They Will Affect Employers

The majority of the provisions in respect of Stakeholder Pension became law as of April 2001. Whether you had existing formal pension arrangements in place for your staff or whether your were not intending to make pension provision for employees, these new laws have affected you!

A Bit of Background

Successive Governments since the early 80s have become concerned at the degree of reliance on the State for income in retirement.

It is, indeed, a fact that within 30 years or so, there will be more people retired than working and the National Insurance contributions from those who are in work will no longer be sufficient to pay pensions to those who are retired.

This latest in a long line of legislation, was designed to introduce low-cost Personal Pensions to encourage people to provide for their own retirement. Just about anyone will be allowed to save into Stakeholder Pension Scheme and, indeed, insist on their employer providing access to one and paying premiums for them via salary. Even those who do not have taxable income from employment, such as wives, carers and even children who do not have earnings of their own, will be able to save into the new style pension scheme. Tax relief will be given on contributions, even for people who do not pay tax. There are, therefore, some considerable opportunities for tax-free saving that you should know about.

It is a legal requirement for an employer with over 5 members of staff to offer access to Stakeholder Pension. This may well cause considerable headaches, as the flexibility which the Government have insisted on in Stakeholder Schemes, could put an additional administrative burden upon employers. Many employers already feel like they are working for the DSS, now that they have to administer Family Credit on behalf of their staff. The Stakeholder regime will probably be more time consuming.

There are, however, certain exemptions that employers could qualify for, so that they do not have to offer a "pathway" to a registered Stakeholder Pension Plan.

Are You Exempt from Offering Stakeholder Pensions?

Employers will not have to offer employees access to Stakeholder if:-

1. All your employees earn less than the National Insurance lower earnings limit.
2. You offer an occupational scheme that allows all employees with earnings at or above the National Insurance lower earnings limit to join within 12 months of starting work for you and which does not require the employee to pay a contribution of more that 3% from his own salary.
3. You offer a Group Personal Pension Scheme, to which you make contributions of at least 3% of the employee's basic earnings yourself and to which you do not insist the employee pays more than 3% of basic earnings. If you already do this, though, you should check that your current Group Personal Pension Scheme has no exit charges if the employee leaves. Schemes with exit charges are not allowed to qualify and you may need to contact us about how to reorganise your existing plan.
4. If your Company employs fewer than 5 people (and including yourself) as long as the Company is not part of a group or holding company and is responsible for the payroll of more than 5 people.

Currently, there is no compulsion for the employer to make payments into a Stakeholder Scheme, but this, along with points 3 and 4 above are destined to be reviewed once Stakeholder has been running for 3 years. The Government is very keen to ensure this works and they will make the necessary changes to ensure that people do buy their own pensions.

Follow our Stakeholder Exemption Checklist to find out if you are exempt from the rules...

As an employer what am I Required To Do By Law?

If your Company is not exempt from offering Stakeholder pensions (and remember even if you are a sole trader employing 5 people you are obliged to offer entry) the following requirements will apply.

• You must provide access to a Stakeholder Pension Scheme by October 2001.
• You will have to choose a registered Stakeholder Pension Scheme to which your employees can contribute.
• Your staff must be involved in this choice.
• You must provide information about the Scheme to all employees, in a suitable manner. This may mean allowing the representatives of the nominated scheme (or the Independent Financial Adviser) access to workplace to promote the scheme in Company time.
• You must provide a payroll deduction facility for employee contributions. Employees may alter their contributions from time to time.
• You must ensure the scheme is maintained and be involved on a day-to-day basis, particularly when you are employing new staff.

Oddly enough, despite the fact that you have to offer access to the Scheme, there is no compulsion currently for you, as the employer, to make contributions into it. The rumour is, however, that it is only a matter of time before the Government will impose some sort of minimum contribution from the employer.

The minimum contribution from an employee will be £20.00 and this contribution can be paid as a one-off or weekly, monthly, quarterly or annually, whatever the employee requires. The maximum they can contribute is either £3,600 in any tax year or more if they are earning sufficient amount and can make a higher contribution within the existing Personal Pension limits.

You, as the employer, will need to choose a default investment option, but members will be allowed to exercise their own investment skills, choosing between the funds and can switch regularly, if they so choose.

Unless you are exempt from Stakeholder provision, you must offer access to all new employees, within 3 months of the employee starting work.

So what are you waiting for, contact us at Charlwood Leigh for further information.

Follow our Stakeholder Exemption Checklist to find out if you are exempt from the rules...