Stakeholder Pensions

Stakeholder Pensions - Explained

Since 2001 many businesses must provide employees with access to a stakeholder pension scheme. Many if not most pharmacy businesses are affected by the legislation. So what is a stakeholder pension and what should you be doing?

What are Stakeholder Pensions?

Stakeholder Pensions are aimed at people who do not currently have the right pension savings options available, stakeholder pensions are a new low cost way for employees to save for retirement. Typically, they have been introduced for those who earn in the region of £10,000 - £20,000 per annum as employees at this level often do not have access to an occupational pension scheme and have made little or no provision for their old age income.

How am I affected as an employer?

Unless you are exempt you must arrange access to a stakeholder pension scheme for employees who earn more than the National Insurance (NI) lower earnings limit. Your employees can then decide whether a stakeholder pension is right for them. Whilst access to the schemes must be made available to your employees, this doesn't mean you have to set up and run a pension scheme.

Who will run the Stakeholder Pension Scheme?

Typically, commercial financial service companies such as banks and insurance companies are now offering such schemes. Approved schemes are registered with the Inland Revenue and the Occupational Regulatory Authority (OPRA) and employees can pay into a scheme from March 6 2001.

What are the exemptions?

As an employer, you are exempt if you meet any of the following conditions:

• You employ fewer than 5 people - this includes company directors, but not self-employed people
• You offer an occupational pension scheme that all your staff can join within 12 months of starting to work
• You offer employees access to a personal pension scheme which meets the following conditions:
• You contribute at least 3% of the employee's basic pay into the personal pension Scheme
• The scheme has no penalties for members ceasing contributions or transferring to another scheme
  

You deduct the contribution via the payroll and send to the personal pension provider if the employee asks you to.

While some employees may be exempt, you must still provide access to a scheme, assuming you as an employer are not exempt. An employee is exempt if:

• You have employed them for less than three consecutive months
• They are eligible to be a member of your occupational pension scheme (whether or not they have actually joined)
• They are aged under 18 or are within five years of the scheme's normal retirement age
• Their earnings are under the NI lower earnings limit
• They are not eligible under Inland Revenue rules, ie they don't reside in the UK.

So what do I have to do?

If you are not exempt you must:

• Select a registered stakeholder pension scheme from the list held by OPRA
• Discuss your choice of scheme with qualifying members of staff
• Formally designate the chosen scheme
• Give your employees the contact details of the scheme
• You must not advise your employees on the suitability of any particular scheme but you must allow reasonable access for the provider to give information on the scheme or even to arrange a visit by a representative
• Arrange payroll deductions from those employees who join the scheme
• Send the contributions to the stakeholder pension scheme provider
• Keep records of all payments made to the scheme provider and notify him
• It is important to understand that your employees do not have to join a scheme - the key is that you as an employer must provide them with access to one and have a system for collecting the premiums. You must also not advise your staff on suitability as such advice falls under the Financial Services Act, which has strict rules on who may provide financial and investment advice.

Finally, be aware that failure to act could lead to a substantial fine - up to £50,000. This is an important area and you should seek further guidance from your own accountant, banker or other financial advisor. The Inland Revenue has produced a booklet ' Stakeholder Pensions - a guide for employers' which can be ordered via the order line - 08457 646646. Further information is also available on the OPRA website at www.stakeholder.opra.gov.uk