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What are Stakeholder Pensions? Stakeholder pensions are a type of pension scheme that started in April 2001. They are designed to be a flexible, low cost way for people to save for their retirement. Employers with 5 or more members of staff may have to make a stakeholder pension available to their staff. As a result of this requirement many workers now have the opportunity to save for later life in an affordable way. Please see section entitled ‘Does your employer need to provide a stakeholder pension scheme?’ for further details. Please note that the information provided on this website is not a complete statement of the law. Full details of the relevant legislation are contained in Section 3 of the Welfare Reform and Pension Act 1999 (and Schedule 3 of the Welfare Reform and Pensions [Northern Ireland] Order 1999). Details are also contained in the Stakeholder Pension Schemes Regulations 2000 – SI 1403 (and the Stakeholder Pension Schemes Regulations [Northern Ireland] 2000) as amended. These can be viewed via the following link: www.legislation.hmso.gov.uk How do Stakeholder Pensions work? The Government has set the minimum standards that stakeholder pension schemes have to meet. These include charges, scheme governance , the benefits schemes must offer, joining eligibility and minimum contribution levels. These minimum standards include the following:
The final pension will be based on the amount paid into the scheme, investment performance, the annuity rates at the time of retirement and whether or not the member has chosen to take up to 25% of the value of his/her fund as a tax free lump sum. This is known as a defined contribution pension arrangement. The pension will NOT be based on earnings at or near retirement (defined benefit pension arrangement). These pension benefits will be on top of any State pension benefits to which members may be entitled. The minimum contribution must, by law, be set no higher than £20. The minimum contribution will not provide a very big pension so members should consider saving more than this in order to provide for their retirement Employers are not required to contribute to a stakeholder pension scheme. However, unions will wish to encourage employers to do so. An employer contribution is likely to encourage more people to join the scheme and will help ensure that people can retire on a decent pension. As pensions are an important employee benefit, a good pension scheme will aid employee recruitment and retention. Who are Stakeholder Pensions for? Stakeholder pensions are designed for people who cannot join a pension scheme where they work. This might be for a number of reasons. For example, their employer may not run a pension scheme or they may not qualify for scheme membership, perhaps because they are too young to join the company scheme or because they work on a temporary contract. Generally speaking, where workers have access to an occupational pension scheme they should consider joining. Occupational pension schemes are the best way to provide for retirement for most people – employers may contribute to these schemes and they frequently provide other benefits such as employee life assurance. Many company schemes continue to offer a pension linked to earnings. For these reasons, anyone who has the opportunity to join an occupational pension scheme should be encouraged to do so. It
is worth noting though that employees and the self-employed can make payments
to any pension arrangement up to the limit of their total earnings and receive
tax relief on their contributions. This is subject to certain overall
limits set by HMRC. For further details on the Annual Allowance and Lifetime
Allowance, please visit People who do not have any earnings can still pay in up to £2,880 in a tax year, which with basic tax relief added by HMR&C becomes £3,600. Stakeholder Pensions are a trade union issue Why should trade unions be concerned about stakeholder pensions? Well, the answer is quite simple: over half a million trade union members cannot enjoy the benefits of an occupational pension scheme. But they could benefit from a stakeholder pension. A further five and a half million trade unionists could benefit by using a stakeholder pension to top-up their occupational pension. Workers across the country, in a wide range of occupations in the public and private sectors, from manufacturing to high tech companies stand to benefit from stakeholder pensions. So every union has an interest in stakeholder pensions. Stakeholder pensions place new duties on employers Stakeholder pensions place duties on employers Legislation enacted in 2001 means that many employers are now obliged to offer their employees access to a stakeholder pension. The legal requirements are included in the legislation mentioned above. . Does your employer need to provide a stakeholder pension scheme? Fill in the questionnaire and let us know. Employers who are not exempt must offer a stakeholder pension if:
In these circumstances employers must make a stakeholder pension scheme available to all employees who earn more than the National Insurance lower earnings limit. (The lower earnings limit for 2009/2010 is £95 a week). Your employees can then decide whether a stakeholder pension is right for them Employer Exemptions Employers will be exempt from the requirement to provide access to a stakeholder pension if any of the conditions below are met:
Before they have designated (formally chosen) a scheme, employers have a legal duty to consult employees and their representatives over the choice of stakeholder provider. This means that unions have the opportunity to make sure that the employer chooses the best scheme available. Although employers must offer a stakeholder pension scheme, employees cannot be forced to join it. However, everyone needs to plan ahead and save in order to make sure that they have the lifestyle they want when they retire. Union reps should therefore consider encouraging employees to join wherever possible – particularly if the employer is making a contribution. The key steps employers need to take All employers who are not exempt (see section entitled ‘Employer Exemptions’) must give their employees access to a stakeholder pension scheme. Employers to whom an exemption no longer applies have three months in which to designate (formally choose) a stakeholder pension scheme otherwise they may be fined by The Pensions Regulator. Outlined below are the following key steps which employers who must offer a stakeholder pension scheme need to take: :
As employee representatives, union reps can play a pivotal role in ensuring that employees have access to the most appropriate scheme available and that eligible staff remain informed about its availability and benefits. In particular, reps:
What makes a good stakeholder pension scheme?
We took all of these factors into consideration prior to appointing Prudential as our designated Stakeholder pension scheme provider, and all the features mentioned are present in the TUC Stakeholder Pension Scheme which has the support of a large number of unions including:
Please note that the effect of legislation, particularly concerning taxation, will depend on the financial circumstances of the individual and is open to interpretation and future changes. Remember that the pension you get, after taking any tax-free lump sum, is taxed as earned income. This web page has been approved by the Prudential Assurance Company Ltd. which is authorised and regulated by the Financial Services Authority. |
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