All employers, whether or not they currently operate an occupational pension scheme, must carefully consider the implications of stakeholder. A failure to properly implement the requirements could lead to a fine of up to GBP 50,000.
Employers must consider whether they need to provide access to a stakeholder arrangement. Even if they do, they are not obliged to make contributions to a stakeholder arrangement.
Employers will be exempt from the designation requirement if they employ less than 5 people.
If an employer has 5 or more employees, access to a stakeholder arrangement must be available to all "Relevant Employees". This means all employees in Great Britain and, if the employer is resident or incorporated in Great Britain, any employees employed outside the United Kingdom. An employee will not be a "Relevant Employee" if they:
- are a member of an occupational pension scheme;
- have an employer who contributes at least 3 percent of earnings to a personal pension;
- have earnings below the lower earnings limit;
- are in a waiting period of up to 12 months to join an occupational pension scheme;
- are under age 18 but could otherwise join an occupational pension scheme;
- are within five years of the normal pension age under the occupational pension scheme but could otherwise join;
- were offered membership of an occupational scheme, declined to join and are now ineligible to rejoin; or
- have been employed for less than three months.
Designating a stakeholder arrangement
Stakeholder pension schemes will be available from 6 April 2001. If an employer has Relevant Employees, it must designate and provide access to a stakeholder pension scheme by 8 October 2001. Before doing so, the employer must consult with Relevant Employees and any organisations representing them (such as a trade union).
Having done this, the employer has to decide which stakeholder scheme or schemes will be designated. The factors which the employer might use to choose a scheme will no doubt be many and varied but they should take comfort from the fact that if the arrange-ment they have designated does not perform well, the legislation protects them from claims.
Paying contributions to a designated stakeholder arrangement
An employer which provides access to a stakeholder scheme must offer the facility to forward employee contributions to the stakeholder direct from an employee's pay. This facility does not need to be provided for contributions to other stakeholders. Contributions are voluntary and individuals can decide how much to contribute and at what intervals.
Contributions must be paid over by the 19th day of the month following the month in which the deduction was made. It will be up to the employer to agree the due date for any employer contributions. A failure to pay over contributions by due dates could result in a fine. The 19th day deadline is a long-stop date for the purposes of statutory sanctions. The Pensions Ombudsman can deal with complaints that shorter delays constitute maladministration. To avoid such claims, contributions should be forwarded to the provider as soon as practicable.
Employers must explain to employees the process involved if employees wish to change their level of contributions. No charge can be made by the employer for changing the level but an employee can be limited to only one change in any six month period.
An employer will need to keep up to date details of the amounts and dates of contributions to be deducted from employees' salaries and, if relevant, contributions due from the employer. Once the record is prepared it should be sent to the stakeholder provider who will then monitor the arrangements. The employer must update the record and inform the provider of any changes.
To view the November 2000 issue of the Pensions update which includes this article, please use the link below. The document can be downloaded or viewed online as an Adobe PDF file.