English - UK	English-Overseas	Brain Teasers
Français	What I need is...	Links
Deutsch	newsletter	email us

Commercial Angles' Nesletter - April 2001 Newsletter

UK Stakeholder Pensions

Worried by the demographic projections of only two working people per pensioner by 2040 the government is replacing the former, unfunded State Earnings Related Pension Scheme, (SERPS) with a funded scheme. The Basic State Pension, which is also unfunded and paid out of current National Insurance contributions from employers and employees, will continue in its present form until further notice but the supplementary SERPS scheme will be replaced by a funded alternative.

Whilst UK has a very high proportion of the working population in funded pension schemes compared with non Anglo-Saxon countries, a number of people are ineligible to join their present employers' schemes. Temporary or contract employees, employees of small businesses and people who change employer frequently are often not able to provide adequately for their retirement. Stakeholder Pensions are the government's new vehicle for ensuring that virtually all employees with annual earnings of £10,000 to £20,000 have an opportunity to contribute towards a funded supplementary retirement pension.

From April 2001 employers can set up a Stakeholder Pension scheme for their employees. From 8 October 2001 all employers with more than five employees (including directors), must have such a scheme or a suitable alternative or face fines of up to £50,000.

Approved Stakeholder Pension Providers

The Occupational Pensions Regulatory Authority, (Opra), is maintaining a register of those suppliers authorised to provide Stakeholder Pension schemes. At present there are forty-six suppliers on the register and the employer must check each year that his supplier is still on the register. To be on the register the suppliers must adhere to the following conditions relating to charges, accessibility and transfers - the CAT standards - and to strict rules on scheme management:

Minimum contributions must not exceed £20 per month per member.
Annual management charges must be no more than 1% of the pension fund.
Members must be allowed to stop and start contributions without penalty.
Members must be allowed to transfer their funds to another supplier without charge.

Choice of Stakeholder Pension Providers

There has been some comment in the financial press about the profitability of Stakeholder business. With charges capped at 1% of fund valuation per year and no penalties on terminating payments or transfers to other providers, the Stakeholder supplier will have to be very lean to make any profits. It is thought that some providers are forecasting a seven-year period before breaking even. If that is true then the only way for Stakeholder providers to survive is to chase client volume and the present forty-six organisations on the register will probably decline dramatically in the future. Many of the present registrations are trade associations, such as the British Chambers of Commerce scheme, providing for their members only. These may continue but general stakeholder providers may eventually fall to number only five or six. This possibility needs to be in mind when businesses select their provider unless they are to go through the selection process every year or so.

Employers Exempted From The Stakeholder Provisions

Unless your business comes under one of the categories below it must provide a Stakeholder Pension scheme to its employees.

The business employs less than five people, (including directors), earning enough to pay National Insurance contributions (£72 per week for 2001/2).
The business offers an occupational pension scheme which all employees over 18 years of age may join within twelve months of starting employment with the business.
The business offers some employees an occupational pension and all the rest of the employees access to a personal pension scheme, which meets the conditions below.
The business offers
- all employees over 18 years of age access to a personal pension scheme to which the business contributes at least 3% of the employee's basic pay, and which
- has no penalties for members who stop contributing or who transfer their funds to another provider, and
- makes deductions from wages, at the employee's request, and pays these deductions over to the pension scheme.

Opra has put a decision tree on-line which enables you to determine whether or not your business needs to provide a Stakeholder Pension scheme for its employees.

Actions To Be Taken

By 8 October 2001 all employers must have established whether or not they must provide a Stakeholder Pension scheme for some or all of their employees, and if so to have:

Chosen a registered Stakeholder Pension scheme supplier.
Discussed the choice of supplier with those employees affected (i.e. consulted not informed).
Ensured that all employees who are entitled to a Stakeholder Pension can join the scheme.
Designated the Stakeholder supplier and informed the qualifying employees of the scheme name and address.
Arranged reasonable access for their employees to the Stakeholder provider at work.
Arranged to deduct contributions from employees' pay for those who want to join the scheme.
Informed the employees about the payroll deduction arrangements.

General

Deductions from payroll are made from net pay i.e. they do not affect employees' statutory deductions. The Inland Revenue will pay the tax relief direct to the Stakeholder provider.
Higher rate taxpayers will claim back their extra tax relief at the end of the tax year on their self assessment forms.
Everybody, even a child, can contribute up to £3600 per year to a Stakeholder Pension. Contributions above this amount may be made depending on an employee's earnings and age subject to the Inland Revenue maximum on pension contributions.
If an employee does not wish to join the employer's Stakeholder scheme he may continue to make payments into another Stakeholder scheme himself but the employer is not obliged to make the deductions from his pay.
Employers are not obliged to make company contributions to a Stakeholder scheme but if they agree to do so, they must make the payments on time otherwise penalties will be imposed.
Deductions from pay must be received by the Stakeholder provider on or before the 19th of the month next following the month in which the deductions were made.
Adequate records of deductions and payments made must be kept by the employer.
An employee may contribute to both a personal pension scheme and a Stakeholder scheme subject to the total contributions not exceeding the Inland Revenue maximum
A small business with less than five employees must start a Stakeholder pension scheme within three months of the start date of the employment of the fifth employee.
A member of an occupational pension scheme who earns less than £30,000 per year and is not a controlling director of thebusiness may also contribute up to £3,600 p.a. to a Stakeholder Pension scheme but this would be a private arrangement not affecting the employer.

Articles from previous newsletters