Pensions 

Stakeholder Pensions

A stakeholder pension is a personal pension intended for employees earning between 10,000 and 20,000, but available also to others. The regulations are contained in the Welfare Reform and Pensions Act 1999 and the Stakeholder Pensions Regulations 2000. Advice is also available from The Pensions Regulator - follow the links.

Stakeholder pensions are intended to be low cost, good value, portable and accessible. The Government's intention is to encourage people who might not ordinarily take out a pension to do so, in order to reduce dependence on SERPS/state second pension.

From October 2001 all employers who are not exempt must offer access to a stakeholder pension scheme for all relevant employees. Even where the employer does not have to offer a scheme, or does not have to offer it to certain employees, it may do so voluntarily.

There is no obligation for the employer to make a contribution to the scheme, although it may choose to do so. It is likely that in the longer term the Government will make employer contributions compulsory.

Exempt Employers

An employer is exempt if any of the following:-

• It has less than 5 employees.
• All employees earn below the national insurance lower earnings limit (01/02 89 per week).
• It offers an approved occupational pension scheme which all employees, except those under 18 or within 5 years of retirement, are eligible to join within a year of starting work.
• It offers all employees, as a contracual right, personal pension arrangements that meet certain criteria.

Relevant employees

Unless the employer is exempt, it must offer a stakeholder pension to every employee who

• is not eligible to join an existing occupational pension scheme (unless by reason of being under 18 or within five years of the normal pensionable age of the scheme).
• has been continuously employed for more than three months and
• has had earnings above the national insurance lower earnings limit for three consecutive months.

Identifying a scheme

From October 2001 all relevant employers must consult entitled employees and designate a registered stakeholder pension scheme. The consultation process is not set down in the regulations, so may take any appropriate form.

There are penalties of up to 50,000 for failure to provide or operate a scheme where it is required.

Registered schemes are on the OPRA website, but an employer should seek independent financial advice before choosing one. Once chosen the employer must:-

• provide employes with basic information about the scheme
• offer payroll deductions from earnings
• maintain records of deductions and contributions towards the scheme
• check periodically to ensure the scheme is still registered with OPRA.

An employee can also choose whether to opt in or out of SERPS/State second pension. For opted-out contributors, national insurance rebates operate in the same way as for appropriate personal pensions.

An employee can change the amount of contribution once in any six month period, by giving notice to the employer.

Employees may choose to join a different scheme, in which case they will have toi make their own payment arrangements unless the employer agrees to make deductions for that scheme. Employees can also choose not to join any scheme, and can change their mind at any time.

Tax Treatment and Concurrency

Contributions to stakeholder pensions are made net of tax, and the pension provider reclaims basic rate tax from the Inland Revenue. The maximum that can be paid into a stakeholder pension is 3600 pa, including tax.(2001/2002 taxyear).

Concurrency means being able to contribut to a stakeholder scheme even if the person is already contributing to another type of pension scheme. The tax relief rules apply to the total contributions.

The only employees who cannot contribute to a stakeholder pension as well as an other scheme are those who are members of their employer's occupational pension scheme and have earned more than £30,000 in each of the last five years.

If you require further assistance please do not hesitate to contact the Legal Team Tel:  0844 5569519  Email: legal@rya.org.uk.