Who might benefit from this page?
- All employers wishing to ensure they comply with relevant legislation
- Smaller businesses expanding and taking on employees
- Businesses considering incorporation, effectively converting partners into directors
The role of employers in the provision of pension schemes is a favourite target for governments hoping to reduce reliance on means tested benefits in retirement. Laws already on the statute books provide for the introduction of compulsory employer contribution at some point in the future. Originally timetabled for 2012 recent announcements have pushed this back and the whole project may not survive into the next Parliament.
What benefits can be gained?
In the meantime Stakeholder pension and the rules for employer access remain very much with us and may well do for some considerable time to come. Attention to this issue for employer may offer the following benefits
- Competitive advantage in recruitment where attention to employee benefits can be shown
- Enhanced retention of staff where they perceive interest is taken in their future
- Staff may gain access to advice which is becoming harder to obtain for small savings amounts except as part of group
Employers need to be aware of their responsibilities under current law and be able to demonstrate compliance
What are Stakeholder Pensions
Introduced in 2001 Stakeholder Pensions are a form of personal pension. That means they are money purchase or defined contribution pension scheme. Contributions plus tax relief are invested in a fund which is used to purchase income benefits at retirement. The contribution limits and tax relief provisions are the same as for personal pensions. In order to be considered to be a Stakeholder pension a scheme must be registered as such with the Pensions Regulator and meet the following conditions:
What are the current rules?
The current rules require all employers who are not exempt (see below) to offer all relevant employees access to a designated stakeholder pension scheme. There is no need for employer’s to contribute to the scheme but they do have a number of responsibilities:
- To identify a stakeholder pension scheme which employees can use for this process
- To consult with employees prior to formally designating the scheme
- To designate the scheme and provide a means for employees to join
- Where requested by the employee, to collect their contributions directly from their net pay and pay on to the pension provider
- Pay all collected contributions (and any employer contributions) to the pension provider by the 19th of the month following collection.
Who is a relevant employee?
In general terms someone who has work for an employer for more than three months, earns more than National Insurance Lower Earnings and is not a member of an occupational pension scheme is likely be relevant employee.
Am I exempt?
Not all employers have to offer access to a Stakeholder Pension scheme as shown below:
The future of employee based pensions
If Personal Accounts survive significant alteration then at some point after 2012 employers will be required to automatically enroll employees into a qualifying scheme. Staff can opt out of the scheme but must reconfirm their choice every three years. Personal Accounts will be a state run qualifying scheme but employers will be able to choose other schemes which meet criteria. Eventually the aim is that employers will contribute 3% of pay with employees required to add 4% of pay plus tax relief of 1% to make a total of 8%. The mandatory contributions are intended to be phased in over a number of years.
What actions can be taken?
- Review the number of employees you have, particularly, if you have recently expanded or incorporated as you may need to offer access to a scheme even if you haven’t in the past.
- If you already offer access to a scheme, have you got procedures in place for new employees or employees whose earnings increase making them ‘relevant’.
- If you are reliant on a non-stakeholder scheme to gain exemption ensure that it meets all the requirements.
- Offering access to pension for staff can be an opportunity to promote yourself as a employer.
How we can help
- We can audit your businesses to determine whether you are exempt from offering access to Stakeholder Payments
- We can recommend new pension arrangements for your staff if required
- We can assist with the consultation process for employees
- We can offer an information and joiners service to help management your responsibilities as employers
- We can oversee and introduce the entire stakeholder designation process