Stakeholder Pensions

FAQs for Employers

1. What are stakeholder pensions?
2. What will I have to do for my employees?
3. Why do I have to do this?
4. How will I designate a scheme?
5. How should I consult with my employees?
6. How will I know a scheme is a good one?
7. What information do I need to give to my employee?
8. Will I be expected to give advice to employees?
9. What is involved in providing payroll deductions? What will the clearing arrangements be?
10. I'm a small employer. Will I have to do this?
11. I already have a Group Personal Pension for my employees. Will I have to provide access to a stakeholder scheme as well?
12. I already provide an occupational scheme for my employees. Will I have to provide access to a stakeholder scheme as well?
13. Do I have to wait until October 2001 before I designate a scheme?
14. Will I have to contribute to an employee's stakeholder pension?
15. How will this affect my end of year returns?
16. Must I offer my employees a Stakeholder Pension, and if so what law says I must?
17. What is The Pensions Regulator, what help can they give me, how do I contact them?
18. Are there penalties for not making a Stakeholder pension available?
19. Are there other offences which The Pensions Regulator can deal with?
20. Will this cost the employer anything?
21. Should I deduct employees' contributions before or after tax and other deductions?
22. If the employer decides to make a contribution will this be a benefit in kind?
23. Employers are too busy to set up pension schemes. The Government should not be forcing employers to provide pensions.
24. What about employers who become liable to provide employer access after October 2001?
25. I employ five or more employees but fewer than five meet the criteria for requiring access to a stakeholder scheme (for example the others earn below the National Insurance Earnings Limit). Does this mean that I am exempt?
26. None of my employees are interested in starting a stakeholder pension. Do I still need to provide access to a stakeholder pension?

Answers

1. What are stakeholder pensions?

Stakeholder pensions are low cost, affordable pensions aimed particularly at the estimated five million people who currently do not have the right options available to save for their retirement.

Stakeholder pensions will be available from April 2001.

The main target group is those earning between £10,000 and £20,000 a year although they may also interest higher earners and non-earners.

Stakeholder pensions will have to meet a number of minimum standards to ensure they offer value for money, flexibility and security.

Charges for membership of the stakeholder pension scheme must be limited to no more than 1% per annum of the value of the fund.

No extra charges can be made if the member stops paying in, or wishes to transfer to another scheme.

Additional charges may only be made in respect of other optional services offered by the scheme, which are subject to separate contract.

Schemes must provide information and explanatory material to potential members, but will not be required to offer individual financial advice within the 1% charge. Schemes may provide individual advice within the charge limit if they wish, or charge a separate fee.

For the first year, existing rebate rates for Contracted-Out Money Purchase Schemes and appropriate personal pensions will apply to stakeholder pensions as well. There will be a full review of rebates before the introduction of the State Second Pension.

A Stakeholder scheme can be established under a trust. A scheme may also be established where there is a contract between the manager of the scheme and its members. The arrangements for the authorisation of scheme managers will be set out by the Financial Services Authority.

Trust based schemes will be able to restrict membership by reference to employment with a particular employer, or membership of a particular trade or organisation. Non trust based schemes will be unable to place any such restriction on scheme membership.

2. What will I have to do for my employees?

• By October 2001, employers will have to:
  • select or designate a stakeholder scheme,
  • provide employees with information about the scheme, and
  • make deductions from an employee's salary for his or her pension contributions to the designated scheme if he or she wants it.
• Employers will not be required to comply from the first day of employment although they will be free to do so if they wish. The requirement becomes mandatory after an employee has been working for an employer for 3 months.
• Employees will not be compelled to join stakeholder schemes.

3. Why do I have to do this?

• The Government wants to provide easier access to stakeholder pensions to make the process of finding and choosing a pension less daunting for many people.
• Employers will be able to provide a straightforward way for employees to join and contribute to a stakeholder pension scheme.
• Pension provision is important. Many employers already make pension arrangements for staff through occupation pension schemes. It is reasonable to expect others to at least provide access to a good pension scheme.

4. How will I designate a scheme?

• Before designating a registered stakeholder scheme you must consult your employees and any organisations representing them
• But it is for you to decide which stakeholder pension scheme to select. The only criterion is that you must ensure the scheme is registered with The Pensions Regulator and available to all your employees.
• Employees who are unhappy with the choice of scheme can choose their own stakeholder scheme, but employers will not be obliged, at least initially, to make payroll deductions in respect of other schemes.
• Designation does not mean you have to set up a separate scheme for your employees.

5. How should I consult with my employees?

• How you go about consulting your employees is for you to decide. You might already have a formal procedure established; or you might give details about possible stakeholder schemes to employees at a meeting; or you might provide employees with details and ask for their views before making the final decision.
• You need only consult your 'relevant employees' - that is those who would be eligible to join the scheme.

6. How will I know a scheme is a good one?

• All stakeholder schemes will be registered with The Pensions Regulator and you should check our register before designating a scheme and then at reasonable intervals.
• You are not required to make any further judgement about the scheme. Employers will not be liable if the stakeholder scheme they designate does not perform as well as other stakeholder schemes.

7. What information do I need to give to my employee?

• The aim is that you should provide an employee with enough information to enable them to contact your designated scheme.
• This will essentially be the name and address of the scheme and perhaps a contact telephone number.
• You can do more than this. For example, in co-operation with the pension scheme, you may wish to pass on some basic information in a leaflet or notice, or let someone from the pension scheme visit the workplace.

8. Will I be expected to give advice to employees?

• No, only to designate a scheme and provide employees with sufficient information to enable them to contact it.
• Some employers may want to offer their employees further help and guidance in interpreting information they have received about the designated schemes. There is some scope for them to do so within the Financial Services Authority 's (FSA) existing rules. Employers could, for example, give factual information about their designated stakeholder pension scheme.

9. What is involved in providing payroll deductions? What will the clearing arrangements be?

• If an employee joins your designated scheme and asks you to make the deductions from his or her pay, then you should deduct and record the amount requested from that employees pay and pass that contribution on to the designated scheme within a specified time.
• The requirements to transfer funds for stakeholder pensions will differ little from current clearing transactions, through the commercial banks and BACS.
• Regulations mean that you are only obliged to accept requests from your employees to change contributions at six-month intervals. Of course you can allow changes more frequently if you wish.
• Employers must give employees information about the operation of the payroll deduction facility. You must inform your employees in writing if you are not changing the deduction following an invalid request, explaining why not and when a valid request can be made, and informing them that they can cancel at any time.

10. I'm a small employer. Will I have to do this?

• Employers with fewer than five employees will be exempted from the mandatory requirement, subject to a review after three years.
• Employers with fewer than five employees can still provide access if they wish, but it will be voluntary.
• Employees who work for an employer with fewer than five staff (and who does not provide access) can deal directly with a pension provider if they want a stakeholder pension.

11. I already have a Group Personal Pension for my employees. Will I have to provide access to a stakeholder scheme as well?

• Employers who arrange group personal pension, which do not have exit charges, and who make a contribution of at least 3 per cent of earnings will initially be exempt, subject to review after three years. The provider of the group personal pension should be able to tell you whether it qualifies for exemption.
• The same provision applies to employers who make contributions to a personal pension chosen by their employees.

12. I already provide an occupational scheme for my employees. Will I have to provide access to a stakeholder scheme as well?

• An employer will be exempt if the occupational scheme allows all employees to join within one year of commencing work (which allows for a limited waiting period).
• Eligibility for joining the occupational scheme can be restricted to those over the age of 18 and those who are more than 5 years younger than the age which would be the normal pension age for the occupational scheme.
• If some employees cannot join the occupational scheme the employer will have to give them access to a stakeholder scheme unless their earnings are below the National Insurance lower earnings limit.

13. Do I have to wait until October 2001 before I designate a scheme?

No. You can select a stakeholder scheme from October 2000 when schemes start to register. Your employees could then start to contribute to a stakeholder pension from April 2001.

14. Will I have to contribute to an employee's stakeholder pension?

No, even if an employer does so for employees in other pension arrangements, but of course, you may do so if you wish, within the relevant tax provisions.

15. How will this affect my end of year returns?

It is unlikely to affect the end of year return (P14) other than the completion of the scheme contracting out number for stakeholder schemes where the employer contributes to the scheme.

16. Must I offer my employees a Stakeholder Pension, and if so what law says I must?

Employers must provide access to a stakeholder pension scheme unless they are exempt. Exemptions include employers with fewer than five employees and employers offering occupational schemes where all staff are eligible to join the scheme within a year of starting work. The exemptions are set out in the summary on employer access and exemptions included on the DWP website.

The requirement for employers to provide access to a stakeholder scheme is included in the Welfare Reform and Pensions Act 1999. The detailed regulations were laid in May 2000.

The Pensions Regulator is one of the regulators for stakeholder pensions. The other is the Financial Services Authority. FSA regulate the rules for marketing and the authorisation of stakeholder scheme managers.

The Pensions Regulator is responsible for registering stakeholder pension schemes and regulating compliance with the registration requirements.

The Pensions Regulator will be responsible for regulating the employer access requirement for stakeholder pensions.

They will also be responsible for monitoring the arrangements for payroll deductions to be transferred by the employer to the scheme provider, including identifying where late payments have been made. The Pensions Regulator has powers to penalise employers if late payments are made to the scheme provider.

The Pensions Regulator will hold the list of registered stakeholder pension scheme providers.

18. Are there penalties for not making a Stakeholder pension available?

The basic requirement is to choose a registered stakeholder scheme, to 9 put your employees in touch with the stakeholder scheme by providing them with information about that scheme, to offer payroll deductions for employees who contribute to that scheme and to maintain records of employee deductions and payments to the provider of the scheme. The Pensions Regulator will regulate the employer access requirement. If we discover that an employer is not complying with the requirement we will ensure that the employer is aware of the legal requirement.

The Pensions Regulator are unlikely to punish employers who have inadvertently failed in their duty to provide employer access (by designating a stakeholder scheme for their employees) as long as they put the matter right promptly. They are more likely to punish people who deliberately avoid their responsibility or who do not rectify the problem.

19. Are there other offences which The Pensions Regulator can deal with?

The Pensions Regulator will treat as a serious matter any failure by employers to pay over contributions deducted from pay to the stakeholder scheme on time. Paying the money to the stakeholder provider when you do the payroll should help you to avoid making late payments.

20. Will this cost the employer anything?

Choosing a stakeholder scheme will require time to consult the employees before designating the scheme Payroll deductions will need to be set up for employees who are paying into the designated stakeholder scheme. However regulations mean that you are only obliged to accept requests from your employees to change contributions at six month intervals. Of course you can allow changes more frequently if you wish.

21. Should I deduct employees' contributions before or after tax and other deductions?

After tax and national insurance.

22. If the employer decides to make a contribution will this be a benefit in kind?

Employer contributions are not treated as a benefit in kind (such payments would not be chargeable under Schedule E for Her Majesty's Revenue & Customs purposes).

23. Employers are too busy to set up pension schemes. The Government should not be forcing employers to provide pensions.

Employers are not being required to run stakeholder pension schemes. You are not being forced to make employer contributions to a pension and you are not responsible if your employees decide that they don't want to sign up with a stakeholder scheme.

24. What about employers who become liable to provide employer access after October 2001?

When an employer becomes liable they have 3 months in which to designate a scheme. For example this will apply when an employer takes on a fifth employee.

25. I employ five or more employees but fewer than five meet the criteria for requiring access to a stakeholder scheme (for example the others earn below the National Insurance Earnings Limit). Does this mean that I am exempt?

No, if you employ five or more staff you should provide access to a stakeholder scheme for any of your staff which meet the criteria. You could provide access for the others on a voluntary basis.

26. None of my employees are interested in starting a stakeholder pension. Do I still need to provide access to a stakeholder pension?

As a minimum, you will need to be able to demonstrate that you have designated a stakeholder scheme and passed on details of the scheme to your employees. The requirement for payroll deductions is dependent on an employee requesting to make contributions in that way.

Lack of interest from the employees does not excuse the employer from the requirements.

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