View more on these topics

Setting up stakeholder

I run a family business which employs 50 staff. We are considering

establishing a pension scheme but I am concerned about the implications of

stakeholder. Please explain how these will affect my business and set out

what my options are.

If no satisfactory alternative to stakeholder exists for employees, it

will be compulsory for the employer to offer a stakeholder facility. The

main features of the proposals to date are:

1: A stakeholder pension must be made available by the employer to all

employees except where the employer operates either an occupational pension

scheme or some other arrangement which proves to be a satisfactory

alternative to stakeholder.

2: Employees and employers can contribute.

3: Contribution levels:

a: Contributions of up to 3,600 a year can be paid regardless
of earnings.

b: Contributions over 3,600 a year can be paid subject to existing

earnings and age-related contribution limits for personal pension schemes.

4: Individuals can contribute to more than one “defined-contribution

scheme”, provided total contri^_butions do not exceed the overall

contribution limit. The schemes which fall into this definition, regardless

of whe^_ther or not they are registered as stakeholder schemes are:

a: Personal pension schemes, including group and appropriate personal

pension schemes.

b: Money-purchase occupational schemes (under the new integrated tax regime).

5: Contributions attract tax relief.

6: Contracts must meet minimum standards.

7: Proposed minimum standards are:

a: Maximum level of charges.

b: No charges on stopping or starting contributions

c: No charges for transferring in or out of scheme.

8: Basic state pension will remain unchanged.

9: State earnings-related pension scheme will be replaced by the state

second pension – proposed April 2002.

10: Proposed launch date for stakeholder – April 2001.

11: Proposed date by which employers must satisfy the stakeholder access

requirements – October 2001.

Employer responsibilities

1: Make a suitable stakeholder arrangement available where no satisfactory

alternative pension scheme is in force.

2: Collect and pass contributions to designated scheme.

There are four main types
of scheme:

1: Final-salary
(defined benefit)

These are occupational pension schemes providing a fixed level of benefits

on retirement, typically based on a fraction of each employee&#39s salary.

Although employees may be required to contribute to the scheme, the

employer would be liable for any shortfall. These types of scheme are only

suitable for large numbers of employees.

2: Contracted-out money-purchase scheme (Comp)

Established under occupatio^_nal scheme rules and subject to Inland

Revenue limitations based on salary and service. Benefits depend on

investment funds built up through emp^_loyer and employee contributions.

They are contracted out of Serps.

The employer is required to make a minimum level of contributions. Both

employer and employees would pay a reduced rate of National Insurance

contributions. This type of scheme has become inc^_reasingly complex to

administer and imp^_oses significant legal duties and obligations on


3: Contracted-in money-purchase scheme (Cimp)

Subject to occupational pension scheme rules. The scheme would not be

contrac^_ted out of Serps. The employer is required to contribute but

minimum level would be specified by the sch^_eme provider. The employer and

employees would pay full Nat^_ional Insurance contributions.

Employees for whom it is appropriate to contract out could do so with a

rebate-only personal pension. Employees would require individual advice.

Cimps have also bec^_ome subject to the new regulatory regime.

4: Group personal pension

An arrangement under the personal pension scheme regime. Each employee

would have an individual account. The com^_pany and employee make

contributions. Benefits are not subject to limitations but contri^_butions

may not exceed certain limits based on member&#39s age. Benefits can be drawn

without penalty from 50 to 75 when an annuity must be bought. Contracting

out of Serps would be carried out, where appropriate, dir^_ectly via each

employee&#39s account. These schemes are not subject to the same regulatory

constraints as occupational pensions.


NPI fund charges to be based on performance

Pension provider NPI is the first life office to base external fundmanagers&#39 charges on performance.The company believes one way IFAs can fight back in the post-stakeholdermarket is to offer external fund management links on its pensions. It isalso making the fund links open to all its new and existing customers.NPI says it whittled its choice […]

&#39PPI investments fail stake criteria&#39

Pooled pension investments will fail the stakeholder crit^_eria, accordingto leading fund managers.The warning comes from the chairman of Autif&#39s pensions advisory groupFiach Maguire, who says most collective investments, such as unit trusts,investment trusts and Oeics, fall foul of the 1 per cent charge capgoverning stakeholder.Collective investments generally have initial charges of up to 6 per […]

&#39Don&#39t waive goodbye to benefits&#39

Scottish Equitable believes the introduction of stakehol^_der in April2001 has brought sales opportunities for IFAs.In his latest Ritchie Paper, pensions development manager Stewart Ritchiehighlights a number of inadequacies in the forthcoming pen^_sion reg^_imewhich could make it bene^_ficial to buy current products.He says that, after April 2001, it will not be possible to effect waiveras part […]

Pearl of the PIA quits for dotcom

The voice of the PIA, Sarah Modlock, is leaving to join newly floatedfinancial dotcom company Interactive Investor. Modlock, 28, will be thefeatures and consumers editor of iii, which aims to become an onlineone-stop financial services shop and has nearly a million users. She willbe taken off any sensitive or firm-specific work between now and herdeparture.She […]

Seeking quality in uncertain markets

By Ewan McAlpine, Senior Client Portfolio Manager In uncertain times, investors naturally seek safety. But in fixed income markets, what does that really mean? Ewan McAlpine outlines the approach RLAM’s Fixed Income Team will be adopting across its credit funds in response to potentially volatile markets this year. Click here for full article


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm