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Employee benefits planning

Field Marketing Ltd has been in existence for just over 15 years. It has grown from little more than a dining-table operation to a successful direct mail company with 20 employees, including the two shareholder directors, Nigel and Bruce.

Four years ago, Field Marketing set up a contracted-in money-purchase scheme (Cimps) with a leading insurance company. All the full-time employees aged 21 or over with at least 18 months&#39 continuous service are eligible to join. Field Marketing pays 2.5 per cent of total pay to the scheme, which is matched by the compulsory employee contribution.

When the DSS booklet on stakeholder pensions arrived, Nigel was charged with sorting out the business&#39s pension arrangements. His budget is that the total pension contributions for all employees (excluding directors) should not exceed 2.5 per cent of basic pay. In an effort to reach a resolution, he has spoken to a variety of people and got three different sets of advice.

The firm which set up the original Cimps suggested that the Cimps should now be converted to a stakeholder occupational scheme with the same insurer but with changed eligibility requirements.

An IFA has recommended that Field Marketing should now establish a group personal pension (GPP), with employer and matching employee contributions each 3 per cent of basic pay. The GPP would be made available to all employees who were not members of the Cimps. The Cimps would then be closed to new entrants and its current members invited to switch to the GPP.

Another independent adviser has suggested that Field Marketing needs only nominate a stakeholder pension and do nothing else.

Draft a report for Nigel advising him on:

1: The minimum changes the company must make to the Cimps to gain exemption from the stakeholder employer access.

2: The relative advantages and disadvantages of converting the Cimps to the stakeholder tax regime (option A).

3: The conditions that would need to apply to the GPP (option B) to gain exemption from the stakeholder employer access rules.

4: The recommended course of action, with justifications.

5: The advantages and disadvantages of incorporating group life cover alongside your proposed pension arrangement.

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