Stakeholder pensions

From October this year licensees who employ five or more people must offer a pension scheme to their staff or risk a fine of up to £50,000. Pensions expert Iain Oliver explains the new law.

Many tenanted, leased and freetrade pubs will be affected by the new rules on pensions. April 6 this year saw the launch of the Government stakeholder pension scheme, aimed at encouraging more people to provide for their own retirement.

The new rules mean that anyone who employs five or more people - either full-time or part-time - must provide access to a scheme for their employees. Employers who don't have a scheme in place by the deadline of October 8 face a fine of up to £50,000.

If this affects you, then there are two important messages. Firstly, you can't avoid it. Secondly, you don't have to become a pensions expert yourself. Help is at hand!

Why do we need a pension?​

Everyone wants to maintain their standard of living when they stop work, but without the regular income we are used to from our employment, most of us would not wish to rely on just the state pension to look after us.

The basic state pension is currently £72.50 a week, or £3,770 a year, for single people and £115.90 a week, or £6,026.80 a year, for married couples. Most people's lifestyles would have to drastically change if this was the only income they had to rely on.

More people are now living longer into their retirement and therefore the need for income grows stronger. This puts an even greater strain on the state finances. The longer we live, the more pensioners there are and the more difficult it becomes for the state to fund their retirement. This means it is becoming more important for people to plan for their own retirement.

What is a stakeholder pension?​

Stakeholder pensions were introduced by the Government to encourage more people to take control and plan for their financial future. Stakeholder pension schemes are aimed at all employees including those working for smaller firms, part-time or self-employed workers, lower-income workers and non-working spouses.

They are intended to be good value, flexible schemes that everybody in the country would be able to afford. Children can now even have their own pension from the day they are born.

To demonstrate value for money, the administration charges are capped at one per cent and the minimum contribution is just £20. The schemes also need to be very flexible and suitable for part-time workers.

Therefore, contributions can be stopped and started without penalty and members must be able to transfer to and from the scheme without incurring extra charges.

To encourage take-up of the new schemes among individuals, the Government has put the onus on employers, requiring them to ensure they make a scheme available to their staff. This may sound like a daunting prospect, especially with all the other legislation employers have to comply with. However, help is at hand and complying with this new legislation can be quite simple.

How can you arrange a stakeholder pension scheme?​

The good news for small employers is that they don't have to design a scheme themselves and it need not cost them anything. The law only demands that they tell their staff how they can sign up for a stakeholder pension if they want one. That can be as straightforward as putting them in touch with one of the organisations that have already registered as a stakeholder provider. It is up to employers whether or not they want to make contributions on behalf of their employees.

Arranging a scheme into which employees can start making their contributions need not be a daunting prospect. An easy way to do this is to contact a local independent financial adviser. They can talk you through how the stakeholder scheme works, recommend the best scheme to fit your requirements and help you to set one up.

Alternatively, you can contact providers directly and ask them how to set up a scheme. Some insurance companies have set up employer systems which means that they will be able to do most of the work for you. Many offer advice packs and helplines and can help with administration.

If employers want to look through all the options themselves, then the Occupational Pensions Regulatory Authority has a list of all stakeholder schemes that have been set up in the UK.

What to look for ​

Before choosing a provider, employers should consider a number of issues:

• Are there any restrictions on membership?
• How well known is the company?
• How strong is it?
• Is it a name which employees will recognise?
• What are the charges?
• How much can they invest?
• How much support is given to employers and employees?

Another good place to start looking is on provider websites where many of them have special sections for those looking to set up an employer stakeholder scheme.

What next?​

The message has to be "act now" on pensions. Doing nothing is not an option for employers, unless they want to be faced with a fine up to £50,000.

Unique Pub Company pension advice​

Unique Pub Company runs a national forum which looks at a range of business issues affecting the company's 3,000-plus tenants and lessees. The forum's employment group has been looking at stakeholder pensions, and Unique has now published a booklet on the subject.

This includes advice on operating the scheme, as the following excerpt shows:

How much administration time will this take up?You will not have to be involved in the day-to-day running of the scheme. The scheme administration and investment experts will take care of most other things. But you will have to:

• Provide a payroll deduction facility
• Ensure contributions are properly calculated and paid to the insurance company
• Pay the contributions to the insurance company within 19 days of the end of the month in which the deduction was made
• Keep up-to-date records of the amounts and dates of contributions deducted from employees.

Unique has chosen Halifax Equitable as a suitable supplier and is making details of is scheme available to it tenants and lessees.

The company stresses that publicans should "choose whichever pension provider you think is most appropriate for your business and your employees. Before selecting any provider of financial services it is recommended that you take independent financial advice."

Further information​

Iain Oliver is Head of Corporate Pensions at Norwich Union. Norwich Union can provide details of its own stakeholder schemes on 0500 103103, or on theinternet at www.your-pension.com.

Occupational Pensions Regulatory Authority: 01273 627600 Web: www.opra.gov.uk

Market Report 2001​

Research for the Publican's Market Report 2001 shows that there are still a significant number of publicans who need to make a decision on which stakeholder pension to offer their employees. Just over half of all the pubs surveyed, 54 per cent, employ enough people to need to take actions. Managed pubs were least likely to be aware of the legislation, reflecting the fact that it a matter for the employer rather than the manager.

Are pubs providing stakeholder pensions?​

Pubs which employ more than five people, by type​