RETIREMENT PAGE


Stakeholder Pension Plan

In April 2001 a new type of low cost pension plan was launched called Stakeholder Pensions. What is very clear is that the government feels that each individual should take more responsibility for funding for their own retirement. Anyone who thinks that the state will cater for them in retirement had better think again!

Although most working people will be offered the opportunity to take out a Stakeholder pension through their employer, Stakeholder has opened up whole new markets for people who can now fund for their retirement where previously they were excluded. These include; Non working spouses. Can pay up to £3,600 per annum without having to provide proof of earnings, or employment.

If the non-working spouse previously worked in the five years before 2001 they can use proof of earnings from this employment to pay in more than £3,600. This could be useful for the spouse who has given up work to raise a family or just taken a short career break.

Carers

The government is aware that a large number of people have had to give up work to look after an elderly relative or a sick spouse or child. These people can now pay in £3,600 per annum to a Stakeholder plan

Children and Grandchildren

There is no minimum age for a Stakeholder Pension so parents and grandparents can now start saving as soon as the child is born!

Retired People.

Strange as it may sound, retired people can still contribute to a Stakeholder Pension Plan.

Remember, Stakeholder Pensions still enjoy all the preferential tax treatment enjoyed by all pension plans such as;

* Tax relief on all contributions at your highest rate of tax. For a basic rate tax payer this means it costs just £2,808 to have £3,600 invested. * The benefits can be taken from age 50 onwards. § 25% of the fund can be taken as a tax free cash sum. Levels and bases of, and reliefs from, taxation are subject to change.

Any tax reliefs referred to are those currently applying and their value depends on the individual circumstances of the investor. Because pension investments may go down as well as up you may not get back the full amount invested. What follows is just a brief description of why Stakeholder Pensions came into being.

Stakeholder - A background

Much of today's pension system was founded on the model of a male breadwinner who supported himself and his family, who suffered, at most, temporary interruptions to a life of full-time work, often for a single employer, and who had a relatively short retirement. Fewer people now work for a single employer for their entire working lives, and self-employment is much more widespread. Many pensioners now live much longer and spend more time in retirement than was previously the case.

This is known as the 'demographic time-bomb'.

More women work, but often not on the same terms as men. Their caring and domestic responsibilities mean that they are more likely to take breaks in their careers, work part-time, and be low paid. Finally, the old assumption - that women, as workless members of families headed by working men, could and should rely largely on their husbands' pension provision - is no longer valid.

Average living standards for pensioners have increased markedly over recent years. The average incomes of newly retired pensioners with occupational pensions are higher than ever before. However, behind that average, the income gap between the better off and the poorest is greater than at any point in the last thirty years. Women, part-time workers and the self-employed are less likely to have occupational or personal pensions, and where they do, their incomes from those pensions are likely to be lower that those of men and women who have worked full-time for an employer.

It was in response to the ever widening gap between the richest and poorest pensioners that the present Government decided to launch a Pensions Review in July 1997. The DSS, directed by the then minister John Denham, was charged with driving this review. They set out to look at meeting ten challenges if they were to succeed in narrowing the gaps in retirement incomes, between the richest and poorest pensioners, men and women, and between full- and part-time workers.

Outlined within the Welfare Reform and Pensions Act 1999 are details about the regulatory bodies set up to provide guidance and compliance for Stakeholder Pensions. They are the Occupational Pensions Regulatory Authority (OPRA), who are responsible for ensuring that Stakeholder Pension Schemes comply with the requirements set out in the relevant legislation, and the Financial Services Authority (FSA), who regulate the marketing and promotion of all Stakeholder Pension Schemes.

The Government has recognised that the most successful avenue of second tier pension provision historically, has been the traditional company sponsored occupational pension scheme. It has also identified the fact that nearly 450,000 businesses do not currently provide access to a suitable pension scheme for its employees, and as such the legislation has now been introduced to resolve this issue. The legislation states that those employers affected by the legislation must offer their employees access to a Stakeholder pension scheme, or a suitable 'exempt' arrangement.

This is known as the 'employer access requirement'. In order to comply with the legislation, employers first need to check if they will be required to provide access to a Stakeholder pension. It may be possible to be exempt from the requirements dependent upon the businesses circumstances.

If an employer has to provide access to a Stakeholder pension scheme, then there are certain obligations he will have to comply with. These are:

* Designate a Stakeholder provider
* Facilitate access for employees
* Provide information
* Allow provider reasonable access to promote the scheme
* Deduct contributions from pay
* Pass on contributions within set time periods
* Keep adequate records

Ease of access to a Stakeholder pension scheme is a key part of the Government's plans. For many employees this will mean being able to join a scheme nominated by their employer. If an employer is required to offer Stakeholder, he will also have to offer the facility to deduct contributions from an employee's pay.

Most businesses will have to offer Stakeholder pension scheme access to all their employees except those who have worked for the firm for less than three months or whose earnings are below the National Insurance Lower Earnings Limit for a continuous period of three months.Employers may also be exempt from setting up a Stakeholder pension scheme if by 8 October 2001 they have a pension scheme set up that meets certain criteria laid down by the Government, or propose to set up an acceptable pension plan that meets certain criteria.

It may be possible to adapt a current scheme that does not meet this criteria initially. It is not only the employer that is required to meet certain obligations within the Stakeholder legislation, any intended provider of Stakeholder pensions has also to meet certain criteria; that of:

* A simple charging structure
* A limit on the permitted level of charges
* Stop and restart facility
* Transfer without additional charge
* Accept transfers in
* Annual information
* Run in the interest of members

The Government has said that it will monitor the take-up of Stakeholder very closely. Accordingly, it makes no secret of its intention to keep compulsion on its agenda as a potential option.

As the Stakeholder framework is in place, the Government may require it to be used for compulsory contributions (by employer and employee) if it considers that significant parts of the population are still failing to invest adequately for retirement provision and are relying too heavily on the state to support them in retirement.

The ultimate Stakeholder issue to be settled, therefore, is whether or not it will be successful on a voluntary basis - in three years' time we will know the Government's definition of "success" when it intends to review the situation.In the meantime, the 'demographic time-bomb' still continues to tick!

How Simon Kershaw and Associates can help

Most businesses will be affected by this, and if you have five or more 'relevant employees', and no pension scheme in place already, you will have to offer access to a Stakeholder pension scheme or become exempt. If you have a pension scheme in place already, should you consider upgrading it so that you won't have to offer access to Stakeholder as well?

There may be a strong case for carrying out a general review anyway. Few, if any, businesses have the resources, expertise and time to do this on their own. Employers should consider obtaining expert and unbiased advice from an outside professional.

Discussing the available options with Simon Kershaw and Associates is one avenue worthy of pursuit.

We can:
* Help you select an appropriate Stakeholder pension provider.
* Provide practical assistance at the implementation stage. (for example, in adapting your payroll system)
* Help you communicate the benefits to your firm's employees.
* Monitor progress and recommend any changes required.
* Be on hand to answer your questions and solve your problems.

The best way to find out more about Stakeholder Pensions is use the contact us form and one of our advisers will be in touch to arrange an appointment or simply click on the link below for a quotation.