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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

employers.

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.

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