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Concurrent membership of UK occupational and stakeholder pension schemes
Adrian Waddingham reports on the recent announcement that concurrent membership of UK occupational and stakeholder pension schemes will be allowed from April 2001.
The UK Inland Revenue and Department of Social Security's press release on this subject has received plenty of attention in the financial press. However, regulations have yet to be released, and much of the detail has yet to be clarified. Much of what is being written is speculation. In order to clarify some of the press speculation, I describe some of the issues briefly below.
We expect that employees who are members of an occupational pension scheme, earning less than £30,000 a year and are not a controlling director, will be allowed to join a stakeholder plan as well. We expect that they will be able to contribute up to £3,600 each year into a stakeholder pension, which appears to be in addition to the occupational pension scheme employee contribution limit of 15% of taxable earnings - this seems over-generous and may be changed in the final regulations.
This is good news for employers with an occupational pension scheme and their employees. Most employees should not now have to decide between their employer's scheme and a stakeholder pension, reducing the opportunity for stakeholder "mis-selling". Employees moving between jobs may also be able to maintain greater continuity of their pensions.
Those currently paying
additional voluntary contributions (AVCs) of less than the stakeholder limit should be able to choose to redirect these contributions to a stakeholder pension. Schemes may even be able to replace their
AVC plan with a stakeholder plan. Stakeholder pensions may have lower costs than
AVCs (due to the strict 1% p.a. limit on charges). One quarter of the stakeholder fund may be allowed to be taken as tax-free cash, which may be in addition to the occupational scheme cash limit (whereas
AVCs do not increase the cash amount that may be taken). Again, this may not be the policy intention and may be ruled out in the final regulations. If the lump sum allowance were indeed in addition to the current limit, then this would make stakeholder contributions potentially more tax efficient than
AVCs (or
ISAs), because the lump sum is currently tax free.
There are plenty of uncertainties at this stage, and the impact of this change will depend on the detail of the regulations.
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For further information, please contact Adrian Waddingham at the Amersham office.
Adrian Waddingham, July 2000.