Home > News > 2001 > March 2001 > Stakeholder is almost with us
Stakeholder is almost with us
Barnett Waddingham fills in the background to Stakeholder as the start date approaches.
As 6 April 2001 approaches, pension providers and advisers alike are bracing themselves for the wealth of changes in the "defined contribution" (or "money purchase") pensions arena.
all the forthcoming changes, undoubtedly the most-heralded is the advent of "Stakeholder Pensions". These comprise the keystoneof the current Government's pensions policy-making and are principally aimed at ;middle-income earners, (defined as those earning between £9,000 and £18,500 a year) and for individuals who are not earning at all, (which can, in theory, include children).
The focus is on simplicity and low charges; specifically, that no provider can levy an annual management charge in excess of 1 per cent for their Stakeholder product.
The initial thinking behind Stakeholder Pensions was laid out in a Government Green Paper in December 1998 and was followed by a series of consultation papers during 1999, which focused on the detail of the new arrangements. The final Stakeholder Regulations were published in May 2000 and the last few months has witnessed a flurry of activity amongst pension providers, as they jostle to secure a firm foothold within the new "1 per cent environment", which the evolution of Stakeholder Pensions has precipitated.
Providers have been able to register their Stakeholder product with Opra (the Occupational Pensions Regulatory Authority) since October 2000 and, to date, around 30 providers have either obtained registration, or are awaiting registration.
Barnett Waddingham have recently conducted a thorough overview of the Stakeholder marketplace and are able to assist employers who are required by legislation to "designate" a particular Stakeholder Pension arrangement for use by their employees. Employers have up until 8 October 2001 to meet their legislative obligations, or risk incurring fines of up to £50,000.
Our services include the provision of a bespoke report including specific recommendations and assistance with the various steps involved in the "designation" procedure.
We are offering these services on a fee-only basis. Working on a fee basis means that we can secure attractive nil commission charging terms for our clients, which are usually well below the 1 per cent maximum permissible annual management charge.
If you would like Barnett Waddingham to assist you with the designation procedure, please, in the first instance, contact James Jones-Tinsley at our Leeds Office on 0113 244 9333.
A summary of the main points regarding Stakeholder Pensions can be found in the table below;
Stakeholder pensions - a concise summary
- No minimum age, although applicants under age 18 must apply through a legal guardian. Maximum age is 75;
- Minimum contribution is £20 (excluding rebates and tax relief). No set payment frequency. All payment methods (excluding cash and credit cards) must be accepted by the provider;
- Any number of Stakeholder pensions may be held with any number of providers by an individual;
- No employer contribution required, but if they do contribute, the contributions must be paid gross;
- All other contributions (including those made by the self-employed and non-employed) are paid net of basic rate tax. Higher rate tax relief is available, where applicable, via tax returns;
- Contributions can include shares from employee share schemes;
- Individuals can pay up to £3,600 a year (gross) without earnings, or if they are also a member of an Occupational Pension Scheme, but with earnings of under £30,000 a year;
- Individuals can pay up to Personal Pension Plan contribution limits, provided that evidence of earnings is given. This evidence will then justify gross annual contributions above £3,600 for the next five tax years;
- If no evidence of earnings provided after five tax years, subsequent gross annual contributions must not exceed £3,600;
- Contributions may be carried back one tax year, but no carry forward is allowed for the tax year 2001/02 onwards;
- Only permitted charge is an annual management charge of up to 1 per cent per annum;
- Extra charges may be levied for additional services, (including life cover and advice), although these are not compulsory;
- Stakeholder providers must make available a default investment fund;
- Stakeholder Plans can either be contract-based or trust-based;
- Stakeholder Plans must have an auditor and either an independent trustee (if trust-based) or a reporting accountant (if contract-based);
- Stakeholder Plans must have a statement of investment principles and an "annual declaration";
- Unless full advice is provided, "decision trees" may be utilised; and
- Unless they are exempt, employers must designate a Stakeholder Pension Plan for their "relevant employees" (as defined), having firstly "consulted" with them and provided them with access to information. Workplace access must also be given to providers.
Barnett Waddingham, March 2001.