Stakeholder pensions at a glance 2

Tim Sargisson gives an update now
the regulations governing the benefit are in force

Stakeholder pensions
were introduced earlier this month and by 8 October 2001, firms with five or
more "relevant" employees must offer access to a stakeholder
compliant pension scheme. Personnel Today provides an at-a-glance guide to
stakeholder pensions

What is a stakeholder

A flexible, low-cost,
tax-efficient retirement savings plan, which should offer good value to everyone,
especially those on low incomes. It should meet minimum standards on cost,
access and terms (CAT) standard, namely:

– A maximum charge of
1 per cent of the fund per annum, calculated on a daily basis of 1/365th per

– The minimum
contribution cannot be set at a level above £20. This applies to regular and
single contributions. There is no minimum frequency or payment term

How will stakeholder
affect employers?

Those with five or
more employees will need to provide access to a stakeholder pension scheme from
October 2001. Those with an existing pension scheme may be exempt.

Firms needing to offer
access to a stakeholder pension, must:

– Designate a
stakeholder provider

– Provide information
to employees

– Offer payroll
deduction for staff contributions

– Enable staff to join
the scheme within three months of joining the organisation

– Offer a default
investment choice so that staff do not have to consider investment options for
their stakeholder payments


Those firms with five
or more "relevant" staff that do not offer stakeholder pensions will
be liable to fines of up to £50,000. Individuals (such as trustees) will be
liable for fines up to £5,000.

What exemptions are

Employers running an
occupation pension scheme: This provides an exemption as long as all employees
can join within 12 months of starting at the firm.

Employers running a
group personal pension plan: They may be exempt from establishing a stakeholder
scheme, as long as:

– The firm contributes
at least 3 per cent of employees’ basic pay

– There are no
"exit charges" or penalties

– Employees must be
able to join the scheme within three months of joining the organisation

What are the advantages
of a pension scheme?

Apart from it being a
legal obligation from 8 October 2001, it will bring benefits to the firm:

– In an increasingly
competitive employment market, a comprehensive benefits package, including a
good pension scheme, is important

– It can attract
quality staff, and over the long-term can encourage existing employees to stay

– A pension is one of
the most tax efficient ways of investing – for you and your employees

– Your contributions
to employees’ pensions are treated as a business expense

– Corporation tax
relief is usually granted in the year contributions are paid, at the highest
rate payable by your business. This can reduce the potential amount of taxable
profits earned by your business

– Contributions paid
by employees also receive tax relief at the highest rate of tax they pay,
thereby reducing their personal tax liability

– Very little tax is
paid on the actual growth in value of pension contributions, allowing more of
the growth to remain in the pension

Setting up a pension scheme
sounds like a lot of work. Is it?

– It doesn’t have to
be. An online link can connect a business with pension providers which can
simplify administration for the firm and ensure all stakeholder requirements
are met. These links can be accommodated in the 1 per cent charging structure

– Using a payroll
system, be it a simple spreadsheet or a top-notch software package, a firm can
provide the necessary information about employees to the pension company. More
accurate data means fewer queries, faster processing and lower costs

– Employees can also
get online access to their personal pension data, thereby minimising pension
enquiries to employers

Tim Sargisson is sales
and marketing director for the Smith & Williamson interactive pensions
exchange Swipe.

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