A lot at stake for employers
Employers and their advisers should start preparing themselves for the new stakeholder pension,
What the stakeholder pension means for employers As well as coping with the recent avalanche of employment welfare legislation, employers must now concern themselves with the stakeholder pension. Since October, employers have been able to choose a stakeholder scheme for their employees to pay into from 6 April, 2001. Employers of five employees or more who do not currently make available an occupational or group personal pension scheme will be required to offer their employees access to a stakeholder scheme by 8 October, 2001. There is no requirement that employers actually contribute to their employees’ stakeholder pensions. Nevertheless employers face new administrative burdens in operating the schemes. Failure to familiarise themselves and comply with their new obligations could prove even more expensive for employers. The new schemes The statutory framework for stakeholder pensions is contained in Part I of the Welfare Reform and Pensions Act 1999. However, in keeping with the current legislative vogue, the act provides for most of the important detail to be prescribed by regulations, currently the Stakeholder Pension Schemes Regulations 2000 (SI No 1403). These will, no doubt, be updated periodically as the schemes evolve, and employers and their advisers should refer to the act and the regulations at all times. The Government intends that the stakeholder pension will actively encourage individuals to take more responsibility for their own pension provision. As such the stakeholder will be open to everyone, but targeted in particular at those earning £10,000 a year or more whose employers do not offer occupational pension schemes. The stakeholder will offer the security of an occupational scheme, be low cost (with a maximum administration charge of 1% per annum), and will be required to accept contributions of as low as £20. There will be no charges for the transfer of funds into or out of the new schemes. Employers do not have to set up and run the stakeholder schemes themselves. This will be done by financial services providers whose schemes must be registered with the Occupational Pensions Regulatory Authority (Opra). Relevant employees Employers must provide access to a stakeholder pension scheme for their “relevant employees”, who are defined as those employed in the UK or (in the case of an employer resident or incorporated in the UK) employed outside the UK. Regulation 23(1) provides exceptions to this general rule. Employers do not have to provide access to a stakeholder in respect of any employee who does not qualify for an occupational pension scheme currently offered by the employer because: they have been with the employer for less than 12 months; or are under the age of 18 or less than five years younger than normal pension age; or had the opportunity to join in the past and did not join.Further exclusions relate to any employee who:l has been employed by the employer for a continuous period of less than three months; orhas earnings below the lower earnings limit for one week or more in the last three months.Employer exemptions Regulation 22 exempts employers from having to provide access to a stakeholder pension scheme if they: employ less than than five employees (all staff must be counted, not just relevant employees); or already make contributions to a pension scheme in respect of every relevant employee over 18, at the rate of at least 3% of remuneration each time the employee is paid (or at longer intervals if agreed). It may be a condition of such a scheme that the employee contributes to it, but there may be no charges or penalties in the event of the employee ceasing contributions or transferring the fund. Employers who currently offer occupational or group pension schemes will wish to consider whether their current arrangements are sufficient to provide an exemption.An employer who was previously exempt, but subsequently loses exemption status has just three months to comply.
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