Stakeholder pensions

The Government introduced regulations regarding pensions with the arrival of stakeholder pension schemes in October 2001. This means that if you've got five or more employees, you need to offer a pension scheme. Those who can't be bothered could wind up with a fine of up to £50,000.

What are stakeholder pensions?

The legislation meant that unless an employer already had a pension scheme in place for their employees, they had to provide access to a stakeholder pension scheme.

If you are setting up a new company with five or more employees, or your number of employees increases to more than five, you need to offer a scheme.

How much will it cost me?
Providing access to a stakeholder pension - and that is all you have to do - doesn't need to cost you anything. You don't have to run the pension scheme. You don't even have to set the thing up. All you have to do is choose a scheme provider after consulting your staff and allow your staff to contribute directly through the payroll if they choose.

You don't have to contribute to your employees' stakeholder pensions - but you can if you wish.

Do I have to offer a stakeholder pension?
To find out if your business is exempt, try using the online "decision tree" for employers produced by the Occupational Pensions Regulatory Authority (Opra), the body responsible for enforcing the new requirements.

Alternatively, take a look at the Government booklet Stakeholder pensions - an employer's guide. You can get a free copy from the Inland Revenue Employer's Orderline on 0845 7 646 646. Or print off a copy from the Department of Work and Pensions Web site.

Whatever you do, unless you have fewer than five employees, don't assume you are exempt. Quite simply, if you have five or more employees and you do not already have a pension scheme in place for your employees, the chances are you need to take action.

You do not need to offer a stakeholder pension scheme to any employee who has less than three months' service or who earns less than the National Insurance lower earnings limit.

So what do I have to do?
If you're not exempt, you need to choose a stakeholder pension scheme. The easiest way is to look at the stakeholder pension register on Opra's stakeholder Web site.

That will give you a full list of all the registered stakeholder schemes together with contact details and links to the pension providers' Web sites. You can get a free paper copy of the register by phoning 01273 627600.

Alternatively you could just follow up one of the adverts in the press or on TV. The most important thing to remember is that the stakeholder scheme you choose must be a registered scheme.

Do I need a financial advisor?
If your situation is particularly complicated or you really can't face doing it yourself, then you could talk to an independent financial advisor - but make sure you talk to a few so you don't end up paying too much. Don't assume you have to use an advisor - many pension providers will do the work for you at no extra charge.

When choosing a stakeholder pension scheme for your employees, remember that the whole point of stakeholder pensions is that they have to meet certain conditions controlled by law. So you can't go too far wrong. And members can transfer from one stakeholder pension scheme to another without penalties or extra charges. This means that if, later, you want to change your scheme, your employees can move the funds they have already built up to the new provider without incurring any costs.

How closely do I have to involve my staff?
You'll need to discuss your choice of scheme with your staff. How you do this will depend on the size of your company, how you communicate with each other already, geographic location and so on. You could:

• set up a meeting and invite your chosen pension provider to give a presentation to staff and answer questions
• use your staff magazine or newsletter to explain your plans and invite comments and questions
• talk to staff or union reps and ask them to present your plans and invite comments and questions
• distribute scheme literature from the pension provider you're considering, asking staff to return their comments to you
• put up a notice on your company noticeboard and ask staff to let you know if they have any comments on your choice of scheme.

Your staff need to be told about your plans and have the chance to express their views.

What next?
Once you've consulted with your staff, you're free to designate (formally choose) your stakeholder pension scheme.

Give your staff details of the scheme, including name and contact information. Your pension provider should be able to offer literature for you to distribute to your staff.

Remember, your pension provider will probably do most, if not all, of the donkey work involved in setting up the scheme and explaining it to members. Don't forget to give any new employees the same literature. You should avoid advising employees of the benefits or otherwise of joining the scheme: the choice is up to the employee and there are strict rules governing who can give advice.

How do I set up a payroll system?
You'll need to set up a payroll facility to deduct contributions from employees' pay and send them to the scheme provider, if the employee asks you to. You need to make sure you keep records of payments into the scheme.

Your payroll system may already be set up to deal with deducting pension contributions. If not, don't panic: some stakeholder pension providers, as part of their service, may help you to set up a payroll deduction system. This is something worth considering when you choose your stakeholder pension provider.

Remember that you are responsible for paying contributions on time. Take a look at Opra's A quick guide for employers about contributions to personal pension and stakeholder pension schemes, so you know what you have to do (it's on the Opra Web site, or call 01273 627600 and ask for a copy).

Useful publications:

• Stakeholder pensions - a guide for employers (Department for Work and Pensions)
• A quick guide for employers about contributions to personal pension and stakeholder pension schemes (Opra)
• Stakeholder pension schemes - an employer's guide (CBI). Order online.

Useful contacts:

• Inland Revenue Employer's helpline: 0845 7 143 143 (established employers) and 0845 607 0143 (new employers).
• OPAS (Pensions Advisory Service) for individual queries: 0845 601 2923.
• Opra (Occupational Pensions Regulatory Authority): 01273 627600. Web site: www.opra.gov.uk