Stakeholder pensions
The Government wants to encourage people to save
for their own retirement and has recently announced its plans
for the introduction of a new pension to help do this - Stakeholder.
In its proposals for stakeholder, the Government
has said that employers will play a key role in offering
this new type of pension to their employees. This places
a big responsibility on your shoulders and will mean that
you have to commit time and money to help provide a pension
for your employees.
As part of its proposals the Government wants
to raise public awareness about pensions. It will be running
an awareness campaign to do this and is encouraging pension
companies to do the same. Your employees will hear more and
more about stakeholder. This may lead them to you, in an
attempt to find out what you are doing for them and their
pension. You may also find that you are approached by trade
unions or trade bodies about your plans for stakeholder.
This is because the Government is encouraging and championing
these groups as likely to set up and offer stakeholder pensions.
However, there is something you can do now to prepare yourself
for the onslaught of enquiries. By seeking professional advice
from Pall Mall Financial Independence Ltd you can decide
what kind of pension scheme you would like to provide for
your employees and can choose a pension which suits your
business, rather than one you are forced to have.
Some frequently asked questions
What
is stakeholder?
Who is stakeholder
aimed at?
What do I have
to do?
Is there any
alternative?
Why should
I have a pension scheme for my employees?
Setting up
a pension scheme sounds like a lot of work for me. Is it?
I already
have a pension scheme for my employees. Do I have to do
anything?
How do I choose
a stakeholder?
And finally….
What is stakeholder?
Stakeholder is the new pension that the Government
introduced in April 2001. It is simple and low cost so that
it offers good value to everyone, especially those on low
incomes. To be able to call itself ‘stakeholder’,
a pension will have to meet minimum standards on cost, access
and terms (the ‘CAT’ standard’).
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questions
Who is stakeholder aimed
at?
It is primarily aimed at everyone who does
not currently have a pension – either through his or
her employer or individually, but it may well appeal to others
too. In particular it is aimed at those people who are on
low to medium incomes (£9,000 to £20,000).
You know your own workforce and will be able
to see how many of your employees fall into this wage bracket.
Unless you have a pension scheme in place, you probably won’t
know who has their own pension. But even if you do. It is
highly likely that all of your employees will have a pension,
which means that you can’t ignore stakeholder.
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questions
What do I have to do?
If you employ five or more people and you don’t
already have a pension scheme for your employees you will
have to:
- decide which stakeholder pension you want to become your
chosen stakeholder scheme
- give basic information about this chosen scheme to all
of your employees
- allow time for your employees to find out about stakeholder,
for example by allowing them to speak to a Independent
Financial Adviser
- deduct pension contributions from salaries through your
payroll system for any employees who decide to join your
chosen stakeholder
- send these contributions to the company which runs your
chosen stakeholder
Employees do not have to join the stakeholder
you have chosen. They will be free to choose which, if any,
pension scheme they will join, including other stakeholders.
If they choose a stakeholder other than the one you have
chosen, you won’t have to deduct contributions through
your payroll. However, this rule could change in the future.
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questions
Is there any alternative?
Not if you employ more than 5 people. In some
circumstances if you already have a group personal pension
plan you may be exempt.
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questions
Why should I have a pension
scheme for my employees?
A pension is one of the most tax-efficient
ways of investing for both you and your employees. Any contributions
made by you to your employees’ pensions will be treated
by the Inland Revenue as a business expense. Corporation
tax relief is usually granted in the year in which contributions
are paid, at the highest rate payable by your business. This
will reduce the potential amount of taxable profits earned
by your business.
For your employees, the contributions they
make will receive tax relief at the highest rate of tax they
pay, reducing their personal tax liability. In addition,
very little tax is paid on the actual growth in value of
pension contributions, allowing more of the growth to remain
in the pension, working on your employees’ behalf.
In an ever more competitive employment market,
people see the advantages of having a good benefits package
from their employer. In today’s world this package
includes a good pension scheme. Indeed, many employees today
expect to find that their employer has some type of pension
scheme that they can join and pay into.
If you have a pension scheme it can help you
to attract good staff to your business. A recruitment advert
that shows you have a food benefits package, including a
pension scheme, is very attractive to potential employees.
In the longer term providing a pension scheme can also encourage
existing employees to stay with your business. It can show
employees that you think about your staff and take an interest
in their welfare.
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questions
Setting up a pension
scheme sounds like a lot of work for me. Is it?
No, it doesn’t have to be. Technology
can play a big part in making it easy for you. Information
about your employees can be taken straight from your payroll
system. This can be done no matter what kind of system you
use, from a simple spreadsheet to a top-of-the-range-bespoke
package. This will mean that the pension company has exactly
the same information on their records as you do on your from
day one.
This information can then be used to provide
illustrations and complete print forms for your employees.
This makes it quick and easy for them to join the scheme
and means that they only need a short time away from their
job, reducing the disruption to your business.
The ongoing administration doesn’t need
to be a burden either. By using technology the pension can
be run quickly and simply. This will free up you and your
staff to concentrate on your business.
At Pall Mall Financial we will be able to give
you more details about how technology can help you.
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questions
I already have a pension
scheme for my employees. Do I have to do anything?
It will depend on the pension scheme you currently
have. The Government wants to encourage people who don’t
already have a pension to provide for their own retirement.
It doesn’t want people who already have a pension with
their employer to opt out of that pension. However, the Government
does want to make sure that everybody has a chance to have
some kind of pension.
You will still have to choose a stakeholder
pension unless your current pension scheme:
- is open to all employees (see the exceptions below) And
- if your scheme is an occupational scheme employees can
join within one year of them starting work for you (except
any employee who is under 18, who is within five years
of retirement or who earns less than the lower earnings
limit) Or
- if your scheme is a group personal pension scheme, you
contribute at least 3% of your employees’ earnings
and the scheme has no ‘exit penalties’
You will see that simply offering a pension
scheme for your employees may not be enough. But, this shouldn’t
be a big problem. As you have already taken steps of offer
a pension to our employees; it may not take much more offer
something that suits your business as well as the Government’s
requirements.
Pall Mall Financial will be able to help you
decide if your current pension scheme is adequate, and will
be able to suggest changes if it does not meet the requirements.
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questions
How do I choose a stakeholder?
You need to consider the best option for your
business and your employees. You may find that there will
be many stakeholders to choose from. Pension companies, other
companies with financial services arms, trade unions, trade
bodies or trade associations, and even supermarkets may all
offer their own stakeholder pension. Deciding which one best
suits you and your employees will not be easy, and it is
important that you make the correct choice. Pall Mall Financial
will be able to look at the options and recommend the one
that is best for you.
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questions
And finally….
If you don’t take any action, you will
find yourself forced to choose a stakeholder scheme for your
employees, tell them about it and make sure that your payroll
systems can cope with paying pension contributions. You may
have to do this even if you already offer a pension scheme
to your staff. The requirement for employers to choose and
offer their employees access to a stakeholder is law. And,
as with all pensions, the practice of this will be closely
regulated. Doing nothing is not an option.
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questions
Questions
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Contact us by email or telephone on 0207 407
8787.
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