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EDITIONS
Thursday, 22 March, 2001, 10:41 GMT
Business warns of stakeholder burden
An office
Stakeholder pensions give small firms an administrative headache
The advent of stakeholder pensions has received a mixed response from business.

By law, companies employing five or more workers will from 8 October have to provide employees with access to a stakeholder scheme if they do not offer a company pension plan or allow all employees access to it.


The administrative burdens should not be underestimated

CBI
The Confederation of British Industry (CBI) - a leading employers' group - welcomes stakeholder pensions but warns they might put an "unreasonable burden" on smaller companies.

The Federation of Small Businesses (FSB) takes a stronger line, saying stakeholder schemes are, in the longer term, unworkable.

CBI pensions spokesman Mark Thomas told BBC News Online employers have "generally supported the objective of stakeholder pensions".

Administrative burden

He said the government had also satisfied some of the CBI's concerns by modifying the legislation.

This included allowing participants in company pension schemes to start stakeholder plans as well. Not allowing this "could have led to difficult choices for individuals", Mr Thomas says.

However, he says the burdens companies face in administering stakeholder pension schemes "should not be underestimated" and the CBI will "keep a careful eye" on the situation.


No provider is going to make any money out of stakeholder pensions for 10 years

Federation of Small Businesses
The burdens are likely to be heaviest on those companies without computerised payroll systems.

According to the CBI, there are also "a lot of employers who aren't particularly conversant with the pensions system".

There is "a way to go" before all employers are aware of their precise obligations on stakeholder pensions and there are bound to be teething problems, the CBI says.

Political reasons?

"Confusion sums the whole thing up," FSB pensions spokesman Terence O'Halloran told BBC News Online.

He says the government is pushing ahead with the stakeholder scheme because of "political dogma" and has "chosen to ignore" the FSB's own alternative proposals for a new pension regime.

He says stakeholder pensions provide "a wonderful tax mechanism for middle and higher earners" but do nothing for low earners.


If a scheme goes belly up, the courts will probably hang the employer

FSB
In addition, the scheme has a "flawed" charging structure, he says - with providers being permitted to charge no more than 1% of the fund's value per year for management.

He says this "low cost" management charge may prove less good value than it appears, when compared with other personal schemes.

Stakeholder pension holders may also find they have to suffer poorer service than those who pay higher fees.

There is the question of competition as well.

"No provider is going to make any money out of stakeholder [pensions] for 10 years at least, probably 25 years," Mr O'Halloran says.

He predicts the more than 30 approved providers will shrink to one within three years.

"It will be almost a monopolistic situation. Is that right?"

He says the FSB will continue to lobby for its own proposed pension regime, which would offer much better returns to savers.

"The government will have to succumb to our advances," he says.

Compensation claim risk

But, while appearing to champion the individual, Mr O'Halloran is also highly critical of the price the stakeholder scheme might exact from small businesses.

He says businesses not only have the "intolerable burden" of selecting and

Companies will have to be careful not to give financial advice

CBI
administering stakeholder schemes but could also be at risk of compensation claims from employees if the pensions perform badly.

"If a scheme goes belly up, the courts will probably hang him [the employer]," Mr O'Halloran says.

"Nothing is going in the statute [book to protect employers from this risk]."

Wider company pension plans?

The CBI admits there is "always a danger" of claims but says companies have often faced similar risks in the past and stakeholder schemes are "not a radical shift of the situation".

"But companies have to be careful not to give financial advice," Mr Thomas says.

He says some companies see the coming of stakeholder pensions as a "positive opportunity" and are now conducting wider reviews of their pensions policies.

He says these reviews are likely to result in existing company pension schemes being widened to include some employees currently without access to them.



Business view

Pensions background

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