Rules of engagement.
| Author | Lockyer, Michael |
| Position | Sourcing a stakeholder pension provider |
Companies must go by the book when sourcing a stakeholder provider, but will this mean that they face an administrative nightmare? Michael Lockyer runs through the legal requirements
When choosing a stakeholder provider, one of the most important things for employers to consider is a consultation with an independent financial adviser (IFA). They can help to negotiate the many regulatory hoops that must be jumped through in order to comply with the government's requirements.
These include involving staff in the decision-making process and setting up a system for deducting contributions from payroll. However, once the scheme is up and running, there should be little administrative burden on employers because the stakeholder provider should look after this side of things.
But before they contact an IFA, employers will need to check that they have the facility to deduct contributions through payroll. Alternatively, employees can opt to make direct debit payments from their bank accounts.
Firms also need to decide how often they will allow changes to be made to contributions. Employers must act on any request -- such as to decrease or increase payments -- at least every six months, although they can implement such changes immediately. If an employee wants to stop contributions, firms must act straight away. If employers choose the six-monthly option, they must let their employees know in writing when they will make the change.
Companies are not obliged to make any contributions to their employees' stakeholder arrangements, but it is the mark of a good employer to do so. Many insurance companies are not willing to accept schemes without an employer contribution.
Whether they contribute to the stakeholder pension scheme or not, employers will want to be assured that their chosen provider has a reasonable track record for good investment performance. A consistently reasonable performance is a better sign of reliability than a wildly fluctuating one.
Firms will also want to know that the provider has a good track record for pensions administration. This is arguably just as important as investment performance. Poor administration could prove to be a nightmare for the personnel department and may lead to complaints from employees to the Occupational Pensions Regulatory Authority (OPRA). In particular, it is essential that employees' contributions are received by the provider by the 19th day of the month following the month in which deductions were...
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