What's at stake?
| Author | McDonald, Janet |
| Position | Employee pensions |
Stakeholder pensions are nearly here and any employers who are not yet geared up should get moving. Janet McDonald runs through the process and explains why it provides a great opportunity for reinforcing relations with staff
The deadline for employers to set up a stakeholder pension scheme is fast approaching. From 8 October 2001, employers who do not provide a suitable alternative pension scheme for their employees will be required to offer access to a stakeholder scheme. The penalty for non-compliance will be high, with fines of up to 50,000 [pounds sterling] for breaches of the stakeholder requirements.
Setting up a stakeholder pension scheme is, however, relatively straightforward. At its most basic, it just involves consulting with a firm's employees and designating a scheme provider. Information about the designated scheme then needs to be made available to all "relevant" employees.
Employers are not required to make any contribution themselves, although they can. If an employee so requests, the employer must make arrangements to deduct contributions through the payroll and pass them directly to the designated stakeholder provider.
Employers are not required to provide any financial advice for their employees in connection with stakeholder pensions. Nor are they under any obligation to check on the financial performance of the scheme that they have designated, provided they are offering access to a stakeholder scheme in accordance with the new requirements.
Nevertheless, it seems likely that any scheme designated by the employer will be closely associated with it in the eyes of the workforce. Consequently, employers are likely to feel under an obligation to choose carefully. It is also possible that, in law, the employer may owe a duty of care to the employee.
The first step for most employers will be to decide whether they need to provide access to a stakeholder scheme for their workforce. Many employers will be exempt. Those with occupational and group personal pension schemes will be exempt as long as their existing schemes meet certain conditions. Small firms -- those with fewer than five employees -- are also exempt. And there are special rules relating to low earners and those who have been employed for short periods, which may also have an impact on the employer's obligations. The flowchart opposite should help employers to decide whether or not they are exempt.
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Employers who have a pension scheme, but do not offer membership to all their employees, may find they can extend their existing pension scheme in order to avoid having to designate a stakeholder. An employer with an occupational pension scheme could, for example, provide life cover under the occupational scheme for employees who are excluded, although the Department of Welfare and Pensions will monitor this and could act to remove this exemption if...
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