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
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
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.
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
These are occupational pension schemes providing a fixed level of benefits
on retirement, typically based on a fraction of each employee's 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's 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's account. These schemes are not subject to the same regulatory
constraints as occupational pensions.