Since 1999 there has been a requirement for employees to be offered access to a stakeholder pension scheme. This essentially means that employers need to arrange a pension provision from commercial financial services companies that they can offer to their employees.
This does not create a company pension scheme in its own right, but merely provides access for employees to such schemes.
Businesses that employ less than five people are excluded from providing a stakeholder pension. Also, businesses that offer an occupational pension scheme that staff are able to join within a year of commencement; offer contribution to employee’s personal pension scheme and
a) offer an amount equal to at least 3% of their basic pay,
b) the scheme has no penalties for members who stop contributing and
c) upon employee request, contributions are removed from pay and sent to the personal pension provider are excluded from providing a stakeholder pension.
Tax relief rules are a consideration for most employees. Subject to various qualifying considerations under changes announced in the 2009 Budget, from April 2011 the amount of tax relief will reduce if an employee’s income is £150,000 or more. Restrictions were introduced from 22 April 2009 to stop people making large additional pension contributions and getting full tax relief ahead of April 2011.
Employees have the right to provide feedback on the choice of Stakeholder Scheme that the employer has opted for. Employers should use their normal route for consultation if one exists i.e. staff forum alternatively, this could be achieved by letter, group meeting or email.
Employers will also have to put in place arrangements to administer contributions to the scheme made by their employees and to ensure that the correct contributions are paid within the timescales laid down under the legislation.
The provisions relating to State Pensions are under regular review and should be considered separately from the Stakeholder provisions by employees and employers alike. All pension related questions should always be considered in light of the individual circumstances of employees as the rules are complex and subject to change from time to time.