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Tony Filbin

With less than 12 months for companies to designate their stakeholder provider, the far-reaching impact of stake-holder pensions on benefit design is now an issue many companies are dealing with and will result in increased corporate activity and hence demand for adviser time.

There are a number of key questions facing companies: Am I exempt from offering a stakeholder pension plan and, if not, what action do I need to take? If I am exempt, do

I want to change my existing pension arrangements to include a stakeholder offering? And do I need to review my AVC arrangements to give a stakeholder offering?

To assist in making those decisions, an employer should also be more aware of more general questions that they should be asking themselves: Does my current pension scheme meet my human resource objectives for recruitment retention and motivation of staff?

With increasing publicity about stakeholder pensions in the press, do I need to communicate the benefits of my existing scheme to my staff to pre-empt any questions that might arise? Should I offer a stakeholder contract for friends and family of staff to enable my staff to take advantage of the relaxed stakeholder contribution rule? And should I examine the possibility of offering a wider range of financial products on group terms to my staff?

Companies with occupational pension arrangements are under continuing pressure from the Pensions Act, with the latest consultation on the minimum funding requirements unlikely to ease the load. This when job mobility is far greater than when most occupational schemes were established, leading to a potential mismatch between the key benefits of an occupational defined-benefit scheme and the needs of the workforce.

Occupational defined-contribution schemes are also disadvantaged in key areas such as contracting out. The removal of compulsory entry into occupational schemes

in 1988 has further led to a situation where, in many cases, occupational arrangements only cover a small proportion of the workforce, with no benefit provision for others.

There is no doubt the Government has brought in some useful reforms, most notably in simplification and removing the need for earnings in order to have a pension scheme.

Another downside of the personal pensions regime, namely that of high charges with penalties for stopping contributions, has been swept away. This is crucial in gaining consumer confidence, knowing that if they choose the wrong provider they will not be locked into a high-charge regime or one with poor investment performance. They will have the ability to move without penalty.

The poor public perception of the personal pensions regime has led to employers being reluctant to introduce such arrangements at a corporate level, but there is already a new feeling of confidence in the stakeholder regime and its appropriateness for employee benefits.

The growing acceptability of employee benefits within

a flexible benefits package also point to a stakeholder opportunity. A wider range of benefits will now take into account the entire family and, it is feasible that an employee will be offered the chance to contribute into

a group stakeholder arrangement on behalf of family members. This would not prejudice their own membership of any occupational pension arrangement.

So expect the decisions that all companies have to make regarding stakeholder pensions to act as a catalyst for wider benefit design issues. The role of financial advisers will be paramount here.

Tony Filbin is pensions development director

at Legal & General


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