Overview of stakeholder pensions

Duty to provide stakeholder pensions

Under the Welfare Reform and Pensions Act 1999, most businesses which have five or more employees, are required to provide access to a stakeholder pension scheme.

Although employees aren’t obliged to sign up to the scheme, such provision must be made for all employees who do not otherwise have access to another suitable pension arrangement at work, and who earn more than the National Insurance lower earnings limit.

This does not mean that you as an employer have to provide a contribution to your employees’ stakeholder pension (although you can if you wish).

If you opt for a stakeholder pension scheme – which will probably be your best option if your business can’t afford to contribute to your employees’ pensions – you will need to choose a registered provider. The Pensions Regulator maintains a register of all stakeholder schemes (see www.thepensionsregulator.gov.uk).

Exemptions

You will be exempt from the employer access requirement if you meet one of the conditions listed below.

1. You employ fewer than five people. This must count company directors but not self-employed people. If you employ five or more employees you must provide access even if fewer than five employees meet the conditions to have access to it.
2. You offer an occupational pension scheme that all your staff can join within a year of starting work for you (Scheme rules can restrict membership to employees age 18 or over and to employees who have at least five years to go before reaching the scheme’s normal pension age).
3. You offer your employees access to a personal pension scheme which:
   • Is available to all employees who should have access to a stakeholder pension scheme (except those under 18).
   • You contribute an amount equal to at least 3% of the employee’s basic pay to the personal pension.
   • Has no penalties for members who stop contributing or who transfer their pension.
   • You deduct the employee’s contributions from their pay and send them to the personal pension provider if the employee asks you to.
4. You offer an occupational scheme for some staff and a personal pension scheme for the rest of your employees, and the schemes meet the required conditions.

If you have an existing occupational scheme or an arrangement with a personal pension provider, check the scheme meets the conditions for being exempt. Even if you are exempt you can still give your employees access to a stakeholder pension scheme if you want.

Employee access conditions

You don’t have to provide access to a stakeholder pension scheme for any employee:

• who has worked for you for less than three months in a row;
• who is a member of your occupational pension scheme;
• who can’t join your occupational scheme because its rules don’t admit people if they are under 18 or they are within five years of the scheme’s normal pension age;
• who opted not to join your occupational pension scheme;
• whose earnings have fallen below the National Insurance lower earnings limit for one or more weeks within the last three months; or
• who can’t join a stakeholder pension scheme because of HMRC restrictions (e.g., the employee does not normally live in the UK).

Access to a stakeholder pension scheme – employer’s duties

If you are not exempt, there are certain steps you need to follow to offer your employees access to a stakeholder pension scheme. You must:

• Select a registered stakeholder pension scheme or schemes from the list of registered pension schemes held by the Pensions Regulator.
• Talk to the employees who qualify for access to the stakeholder pension scheme about your proposed choice of scheme (or schemes).
• Formally choose (designate) the stakeholder pension scheme and provide your employees with the name and address of the stakeholder pension scheme provider.
• Make arrangements to deduct contributions from employees’ pay for those who want to pay into your designated scheme through you and then inform your employees of your payroll deduction arrangements.
• Send employee contributions (and your contributions if any) to the stakeholder pension scheme provider within the given time limits and record the payments you make to the stakeholder pension scheme provider.
• Check about once a year that the scheme is still registered as a stakeholder pension

Changes to your designated scheme

If you become exempt, you can stop offering your employees access to a stakeholder pension scheme but if circumstances change and you’re no longer exempt, you have to offer your employees access to a scheme again within 3 months.

If the Pensions Regulator removes a stakeholder pension scheme from the register, the scheme trustees or manager will name a new scheme to take over from it. You can accept this scheme without discussing it with your employees but if you want to designate a different scheme, you need to consult your employees again. Either way, you must have the new scheme in place within 4 months.

If you cancel your designation of a stakeholder scheme, you must designate a new scheme before you leave the first one. If you do change your designated stakeholder pension scheme, you have to continue making payroll deductions to the first stakeholder pension scheme if any of your employees are members of that scheme and want you to continue making payroll deductions.