The Welfare Reform and Pensions Act 1999 launched stakeholder pensions. Stakeholder pension schemes are run by financial services companies. Employees do not have to join a stakeholder pension scheme, nor do employers have to contribute to one. The legislation does, however, require employers to take certain steps to help employees who do want to join.
Employers need not facilitate access to a stakeholder pension if they already offer an occupational pension scheme that all their employees can join within a year of starting work, or if they offer a group personal pension scheme that meets certain conditions. They are also exempt if they have fewer than five employees. Employers do not have to provide access to a stakeholder pension for certain employees, including those whose earnings are below the National Insurance lower earnings limit or who have worked for the employer for less than three months. The Pensions Regulator provides an online 'decision tree' to help employers decide whether they are obliged to offer their employees access to a stakeholder pension ( Pensions links ).
A stakeholder scheme must meet certain conditions. There is, for example, a limit on the administration charges that it can make (up to 1 per cent of the fund value) and it must be prepared to accept contributions as small as £20. A scheme that meets these conditions can be registered with the Pensions Regulator. The register of schemes is available on the Internet ( Pensions links ) or from the Pensions Regulator.
The combined effect of the 1999 Act and the Stakeholder Pension Schemes Regulations 2000 is that employers must ensure that they do the following:
- designate, or choose, a particular registered stakeholder pension scheme, after consulting with the employees and any organisations representing them, such as trade unions and staff associations;
- give employees the name and address of the scheme;
- allow representatives of the scheme reasonable access to the employees so that the scheme can be explained to them;
- if an employee so requests, deduct the employee's contributions to the scheme from his or her pay and pay them over to the scheme promptly;
- keep up-to-date records of the payments that have been made and send the record to the scheme provider; and
- provide employees with information on how they can request that deductions of stakeholder pension contributions should be made, varied or stopped, and how such requests will be dealt with.
Designating a particular scheme does not imply that the employer is making any judgement on the merits of joining the scheme, or on its past, present or future performance.
Employers who need more information about stakeholder pensions can contact their Association or the Inland Revenue employer's helpline, or consult the guides produced by the Department for Work and Pensions ( Pensions links ).