Every business should make it their business to know about stakeholder pensions. And fast. They are already in existence and have been since 6 April 2001. But if you are still thinking that this is a nice idea but pensions are something for big companies, you could be facing a big fine.
Since 8 October 2001, every business with five or more staff has been required by law to offer one. According to figures from the Department of Trade and Industry, that could be nearly 400,000 businesses. So if you haven’t staked out the pensions market, take a minute to read our guide.
What are stakeholder pensions?
Stakeholder pensions are intended to be low-cost pensions for people who can’t join an occupational pension scheme. They are designed to help people earning between £10,000-£20,000 a year and those who don’t earn anything but can afford to save. Stakeholder pensions are meant to be low cost and accessible. Costs are limited to less than 1% per annum and the minimum amount to pay can be less then £20 a month. Anyone will be able to choose one from a bank or other financial services provider. But it is more than likely that many people will have to be offered a stakeholder pension through their employment. And that’s where you come in.
How do stakeholder pensions affect you?
If you employ more than five people, you must arrange access to stakeholder pensions for those who earn more than the National Insurance lower earnings limit, which is currently £3484 a year. You will have to select a scheme that your employees can join. Does it apply to you?You are exempt from the stakeholder pension shceme if:
- You employ less than five people.
This doesn’t include self-employed people working for you. If you have more employees than this, and four or fewer are entitled to access to a stakeholder pension scheme, you must provide it.
- You already offer an occupational pension.
If you already offer an occupational pension scheme to all employees within a year of them joining it may qualify but you still need to check if your scheme meets the regulations.
- You already offer a personal pension scheme.
To qualify the scheme must be available to everyone who should have access to a stakeholder pension; you contribute at least 3% of an employee’s basic pay to their personal pension; there are no penalties for pension members who stop contributing or transfer their pension; and you manage the transfer of money to the pension if your staff want you to.
Even if your situation makes you exempt, you can still offer your employees access to a stakeholder pension scheme if you ilke. Who qualifies?Not all employees qualify for access to stakeholder pensions. You don’t have to provide access if they:
- Have worked for you for less than three months running.
- Are already a member of your occupational pension scheme
- Can’t join your occupational scheme because it doesn’t admit people under 18 or within five years of the scheme’s normal pension age
- Decided against joining your occupational pension scheme
- Have not reached the National Insurance lower earnings limit for at least three months in a row
- Can’t join a stakeholder pension scheme because of Inland Revenue restrictions (for example, they don’t usually live in the UK).
But that doesn’t get you off the hook forever. If the situation changes you have three months to designate a scheme.