Don't panic over pensions

By JAMES HOPEGOOD
Updated:

 

Fears are growing that some financial salesmen are using the imminent arrival of stakeholder pensions to panic small businesses into bumping up their current pension contributions unnecessarily.

Stakeholder pensions are intended to give people who currently do not save for their retirement a low-cost and flexible way of doing so.

From October next year, any company with five or more employees that doesn't already have a pension scheme for its workers will have to, at the very least, provide access to a stakeholder pension scheme.

However, companies with group personal pension schemes that pay in at least 3% of workers' salaries on top of any employee's contributions escape having to give access to a stakeholder scheme.

Pension experts are warning that some financial salesmen are using this as an excuse to worry companies into increasing contributions into pension schemes when in fact they don't need to.

John King, pensions manager at accountants Blick Rothenberg, says: 'The point is that it may not give exemption, but it will increase an employer's contribution, and it will certainly give the broker more commission.

'We have had an increasing number of inquiries from existing clients who are being targeted, and it is being suggested that they do more than they need to.'

Independent financial adviser Gareth Marr, managing director of A&B Services, says: 'The way that information about stakeholder pensions is coming out is leading to massive confusion, and that is the ideal time for some people to get in and take a turn.'

Stakeholder pensions go live in April 2001, but companies have a further six months to put access to them in place.

To qualify as one, a pension scheme cannot charge more than 1% a year to run the scheme.

The cost of financial advice has to be included in that 1% or made as a separate, explicit charge.

The cap on charges also means there is very little room for the high, up-front commission traditionally paid to advisers for selling group personal pensions.

• Quality cooked meat company Brookfield Foods, based in Deeside in Flintshire, has just put a stakeholder-friendly group personal pension in place for its 410 employees.

Finance director Chris Hulse says the company wants to keep hold of its trained staff and the pension, run by Virgin Direct, is one way of doing so.

The company, which has been going for just over seven years, and staff both pay 3% of wages into the scheme. That will rise to 5% each in the next two years.

Mr Hulse says:'We have got to the stage where we are not prepared to wait for stakeholder pensions to start. It is better for us to have a motivated workforce and having a pension scheme is part of that.

'We also liked this scheme because it doesn't have any high commission charges and the management fee is 1%.'

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