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Wednesday, 3 October, 2001, 12:30 GMT 13:30 UK
Q&A: Stakeholder pensions
What are stakeholder pensions?
Stakeholders are aimed at encouraging people to save for their retirement.
In particular, the government wants to encourage the three million employees who earn £10,000-20,000 a year, and who have not yet made any provision.
The schemes are low cost. The maximum annual management charge is capped at 1% and you can contribute as little as £20 a month.
The schemes also attract tax relief. This means that a basic-rate tax payer need only contribute £2,808 a year to make the maximum £3,600 contribution.
Higher-rate tax payers can claim a further 18p, if they make this declaration on their self assessment forms.
Why do I need to set up a scheme?
The Welfare Reform and Pensions Act 1999 compels certain companies to offer their employees access to a stakeholder pension scheme.
Those companies must set up a scheme before 8 October or could face fines of up to £50,000.
Companies not only risk fines but being publicly "named and shamed" on the Occupational Pensions Regulatory Authority (OPRA) website.
Is my business exempt?
Companies with at least five eligible staff must offer staff the chance to join the stakeholder plan, unless an alternative plan is available.
You are exempt if you have fewer than five employees and offer a company pension to all your staff within 12 months of them joining.
Companies that provide group personal pension plans and contribute the equivalent of at least 3% of employee's annual earnings to their staff should also be exempt.
However, they must still set up a stakeholder plan if they have more than five employees who are not eligible for their occupational scheme.
The Inland Revenue's guide to stakeholder pensions has further details of exemptions. If you have questions about eligibility, check with the advisory services (see below).
Are all staff eligible?
Most employees will be able to join.
However, employers do not have to offer a stakeholder pension to staff until they have been employed "continuously" for at least three months.
Workers must also earn more than the National Insurance lower earnings limit (£3,744 a year for 2001/02) continuously over a three month period to qualify for their employer's scheme.
Your staff are not obliged to sign up to your scheme - and you are not obliged to make additional contributions.
How do I choose a scheme?
There are currently 48 firms offering stakeholder pension plans, and it can be daunting to know who you should go with.
With annual charges capped at 1%, there is little room for manoeuvre, and firms are not expected to go into profit until 2010.
It is widely rumoured that the government will make stakeholder pensions compulsory in the future.
In the meantime, it is important to pick a sold investment company - question the company about the range and diversity of funds that it will invest in.
The Equitable Life debacle has highlighted the tightrope that pension investors face, so it is important to make sure the company is financially strong.
A good indication is through Standard & Poor's rating system. Ratings range from AAA, which is for superior financial strength to CCC for extremely weak funds.
For a list of the 48 companies offering stakeholder pensions, see the register on the Occupational Pensions Regulatory Authority (Opra) website.
If you make the wrong choice, it is easier to switch under a stakeholder plan.
This is because the rules state that you can switch your pension provider at no extra cost - apart from the hassle involved.
What do I need to do?
Here is a step-by-step guide:
If your employee chooses to join your scheme, you must arrange deductions from their pay.
You must keep records of how much you are deducting, as well as send these contributions onto the stakeholder scheme company.
However, regulations mean that you are not obliged to accept requests from your employees to change contributions at less than six monthly intervals.
Where can I find further information?
There are various sources of information on offer from government departments.
The Department for Work and Pensions (DWP) has a guide for employers (see links). You can order a copy of the guide from the Inland Revenue's Employers Orderline on 0845 7 646 646.
If you have specific questions, you can call the Inland Revenue's employers helpline on 0845 7143143.
Opra will oversee employers' stakeholder pension schemes from Monday.
It has useful information on its website, including a register of stakeholder pension schemes with their contact details.
Opra also has a "decision tree" section, which will help you through the process step-by-step.
The Pensions Advisory Service offers free information for private investors on 0845 6012923, as well as from its website.
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