Are you ready to offer your staff a pension? Mary Evans looks to the future near and far as the new stakeholder pension scheme comes in
Next month sees a revolution in the way thousands of childcare workers will be able to plan and save for their retirement, with the launch of the Government's stakeholder pensions scheme.
Successive governments have worried that while the state pension scheme would be insufficient to provide adequate incomes for an increasingly long-lived population, too few people were attempting to provide for themselves. The stakeholder scheme, to be introduced on 6 April, aims to plug the savings gap between occupational and state pensions for up to five million low-to-middle income earners.
The stakeholder scheme is designed to be flexible, transparent and cheap. By law, stakeholder pension providers can only charge management costs of a maximum of one per cent of the value of a person's pension fund each year, so if a contributor builds up a pension fund of 30,000 he or she will only pay 300 a year in administrative charges.
Employers have until October to arrange for their workers to have access to a stakeholder pension scheme, unless they are exempt (see box below). However, nearly 90 per cent of respondents to a survey by the National Day Nurseries Association reported they are already providing a pension or are on target to meet the stakeholder provisions.
Stephen Walsh, managing director of the Saplings nursery chain, welcomes the new scheme. He says, 'I think the stakeholder pension is a very good idea. I am in favour of it. I think it draws everybody's attention to the fact that now is the time to be thinking about your pension and you should not put it off. If you start paying a little bit a month into a scheme - perhaps 20 a month when you are aged 18 or 19 - that is probably all you need.
'We have not yet worked out exactly what we are going to do, whether we are going to put in money for the employees and whether we will match what they put in. We have still got to decide the details.
'We had a presentation from Equitable Life, but that folded so we had to start afresh. Quite a number of our staff, who are now aged around 35, are saying they wish something like this had been available when they started work.'
Rosemary Murphy, chief executive of the National Day Nurseries Association, sounds a note of caution - she points out that the scheme is voluntary, so staff are not obliged to participate. 'This has been introduced because the Government was very aware that unless something dramatic was done there were going to be piles of people with no money,' she says. 'But people do not have to take it up. They can say, "now is not a good time for me to be saving money" and just fall through the system. It will take more than employers offering a pension to get people back into the idea of saving.'
Her other criticism is that unlike the NDNA's pension package, which was launched in October 1999 and is approved as a stakeholder pension, there is no obligation on employers to contribute to stakeholder pensions. She says, 'I think, in time, the Government will require employers to contribute. Under the NDNA scheme the minimum contributions are one and a half per cent of the employee's salary from the employee and 3 per cent from the employer, and then there is the tax relief.'
The NDNA received responses from 215 of the 830 members it surveyed throughout England and Wales. Only 39 respondents said they were considering using the NDNA package, while 118 said they had made arrangements to meet the stakeholder requirements and 58 said they already offered staff pensions. A spokesman said the NDNA interpreted these figures to mean that nursery owners were reluctant to make contributions to their workers' pensions.
What are stakeholder pensions?
A stakeholder pension takes a worker's contributions, adds on 22 per cent in tax relief and invests the total on the stock market to create a pension pot. When the person retires, the nest egg that has built up is used to buy a regular income through an annuity.
The tax relief is available to everyone who pays into a stakeholder pension scheme - even those who do not pay tax, and you can contribute even if you are not in work.
With a basic rate of income tax set at 22 per cent, for every 100 you pay there is another 22 added. People paying income tax at the higher rate of 40 per cent can claim back the difference from the Inland Revenue.
People can invest up to 3,600 a year in the pension scheme. This limit includes:
- The worker's own contributions
- Any contributions made by the employer
- The tax relief coming from the Inland Revenue.
Stakeholder pensions will be available from financial services institutions such as insurance companies, banks, building societies and investment companies.
Who are these pensions for?
The scheme is aimed at people earning between 10,000 and 20,000 a year who, unlike nearly two-thirds of the workforce, do not have access to a better option such as an employer's pension scheme or their own personal pension.
What do employers have to do?
An employer must provide the workforce with access to a stakeholder pension scheme by 8 October this year, unless they are exempt. Employers are exempt if they:
- Employ fewer than five people
- Offer an occupational pension scheme for all their employees to join within one year of them starting work
- Offer to contribute at least 3 per cent of earnings into a personal pension for their workers as long as the scheme does not penalise staff who leave it
- The Government has said it will review the exemptions in 2003/2004.
Providing access means that employers have to select a scheme for their staff, give them information and allow them the option to have their pension contributions deducted direct from their pay.
Employers do not have to provide access to stakeholder pensions to staff who are earning less than 3,484 a year. Workers can choose to join a different scheme from the one their employer is providing. Stakeholder pensions are flexible and workers can choose to increase, reduce or stop their contributions, but if they are contributing from their pay the employer can limit how often changes are made to keep their administrative costs down.
Further information
- The Government has a helpline for employers and a printed guide. The free helpline, run by the Inland Revenue, is open from 8am to 8pm Monday to Friday, and from 8am-5pm at weekends on 0845 7143 143.
- Copies of the guide, which has been sent to employers with five or more staff, are available from 0845 7646 646 or via the internet from www.dss.gov.uk
- Employers can get information on the register of stakeholder pension schemes from the Occupational Pensions Regulatory Authority on 01273 627600 or at www.stakeholder.opra.gov.uk
- Individuals with queries about stakeholder pensions should contact the helpline run by the Pensions Advisory Service on 0845 601 2923
- DSS guides to pensions, including Stakeholder Pensions (PM8), Pensions for Women (PM6), and Pensions for the Self-employed (PM5) are available from 0845 731 3233 or on the internet at http://www.pensionguide.gov.uk
