Boss's guide to stakeholder

By THIS IS MONEY
Updated:

 

STAKEHOLDER pensions will launch on 6 April and will be aimed at the self-employed, lower paid and those who are not part of a company pension scheme. In particular, they are aimed at those in the £9,000 to £18,000 income bracket.

All UK business owners that employ more than five people must select and nominate a stakeholder pension scheme for their employees by 8 October 2001 - or face a fine.

What will my company need to do?
www.Legalpulse.com, the free legal website for small firms, has identified four things that an employer needs to do:

Identify and select a scheme
Employers will need to choose a scheme provider. The provider will have to be registered with OPRA, the pensions regulatory body. Employers can find further information at OPRA.

Inform employees about the scheme
This may cause problems if not done carefully. Although employers have statutory protection from liability for the investment performance of a scheme, making comments on a certain scheme's advantages and disadvantages may be seen as investment advice - something restricted to those authorised by the Financial Services Authority.

The best solution would be for employers to confine their comments about a particular scheme to factual matters only, or alternatively, seek the advice of an independent financial adviser.

Allow the provider access to staff
This may simply be a lunchtime visit or a more comprehensive talk over a few days, depending on the size of the workforce.

Put in place the administrative system
There are essentially four administrative requirements under this obligation. The first is that companies must deduct employees' contributions from their salary if requested and remit them to the scheme provider.

Second, employers are legally responsible for ensuring that contributions are worked out correctly. Third, employers must keep up-to-date records and fourthly, employers must notify scheme providers of contributions being made and of any changes.

Exemptions
If a company employs fewer than five employees then it will qualify for an exemption. If a company employs more than five employees it will qualify if any member of the workforce:

• Is already a member of a pension scheme the employer may have;

• Is eligible for membership of the employer's pension scheme after the age of 18 and on completion of no more than a year's service and until five years before the scheme's normal retirement age;

• Has been employed for less than three months, therefore enabling employers to avoid the requirement to provide access to a stakeholder pension scheme;

• Has previously declined membership of the employer's scheme and is now excluded by the rules;

• Whose earnings are below the lower earnings limit for NI contributions

• Is excluded by certain Inland Revenue restrictions from contributing to a stakeholder scheme.

The benefits
From the contributor's position a stakeholder pension is transparent, has a very low charging structure and is flexible. The schemes may charge no more than 1% a year of an individual's fund value in fees. Moreover, an individual may decide to pay into his or her own pension scheme rather than that nominated by their employer.

Don't wait until the 8 October to sort this out. Companies should take legal and independent financial advice now in order to implement the administrative systems and allow sufficient time for workforce consultation.

• Gillian Switalski is chief executive of Legalpulse.com; e-mail: info@legalpulse.com

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