Group personal and stakeholder pensions

An employer may wish to set up (or provide access to) a group stakeholder or personal pension plan, rather than an occupational arrangement. Although a group stakeholder or group personal pension plan may look similar to an occupational pension scheme, it is actually a series of individual policies taken out by each employee.

In terms of contributions, tax relief, benefits etc., group stakeholder arid group personal pensions are identical to the personal and stakeholder pensions which we have already considered. The following sections relate to the ways in which group stakeholder and group personal pensions differ from individual arrangements.

Group stakeholder pensions

When stakeholder pensions were introduced in 2001, the Government wanted to ensure that the vast majority of employees would have access to a pension scheme via their employer.

Therefore, since 8 October 2001, all employers have to offer their employees access to a stakeholder pension plan, unless they are exempt.

Regulation of stakeholder pensions

Stakeholder pension schemes are subject to a number of regulatory requirements. The main ones are:

the scheme must be registered with the Pensions Regulator,
one of the Pensions Regulator's roles is to maintain a directory of all stakeholder schemes,
the Pensions Regulator is also responsible for regulating compliance with the requirements of registration;
the Financial Services Authority (FSA) regulates the marketing of schemes and the provision of advice,
it also supervises the firms responsible for managing the funds invested; and
stakeholder schemes have to be approved by HMRC to ensure that schemes meet the necessary conditions for tax approval.
Employer access requirements and exemptions

Apart from exempt employers, all employers roust offer an employee access to a stakeholder scheme within three months of their starting work.

The following employers are exempt from these requirements:

Employers with fewer than five employees.
Employers whose employees have all had earnings below the National Insurance Lower Earnings Limit (LEL) for one or more weeks in the last three months.
Employers who offer an occupational pension scheme to all employees, provided that the waiting period is no more than one year;
however, employees under the age of 18 or those within five years of retirement at entry may be excluded from the scheme.
Employers who contribute at least 3% of each employee's basic pay into personal pensions or a group personal pension subject to the following conditions:
the personal or stakeholder pension must have no exit charges or penalties;
an employee contribution may be a condition of membership, but the employer cannot set a compulsory employee's contribution of above 3% of basic pay for employee arrangements that started on or after 8 October 2001;
for arrangements that started before 8 October 2001 the employee can be required to match an employer's contribution exceeding 3%;
the employer, it requested, must agree to deduct contributions from the employee's pay and then pass the contributions on to the provider;
employer contributions must be made at the same frequency as employee deductions from pay or at longer intervals if both the employer and the employees are in agreement; and
for arrangements that started after 8 October 2001, the conditions listed above must form part of the employee's contract of employment.

Where none of the exemptions above apply, the employer must provide access to a stakeholder scheme. They must comply with the following rules:

the employee does not have to join the scheme and can choose their own alternative scheme if desired;
the employer must supply relevant employees with the name and address of the designated stakeholder pension scheme and must allow a representative of the designated scheme reasonable access to the employees to give them information about the scheme;
if asked, the employer must deduct the employee's contribution from their pay,
however, the employee must be able to use an alternative method of payment, e.g. direct debit, if they wish;
the employee must be able to commence payroll deductions, vary payments or cease payments, though the employer does not have to agree to an employee's request if it is made within six months of a previous request; and
the employer must pass the contributions to the stakeholder provider within 19 days of the end of the month in which contributions were made.

Compliance with the employer access requirements will be policed by the Pensions Regulator. If the employer fails to meet the requirements, penalties will apply.

The stakeholder scheme itself must meet the minimum standards set out above.

Group personal pensions

As an alternative to an occupational scheme or a group stakeholder scheme, an employer may instead offer a group personal pension plan.

A group personal pension plan is effectively a collection of individual personal pensions. Usually the employer will collect any employee premiums, and pay these to the insurance company with the employer contribution. As the insurance company is receiving one premium instead of premiums from each employee, the administration is much cheaper. These cost savings may he passed on to the scheme through lower charges.

Usually a group personal pension plan will be set up so that the employer does not have to offer a separate stakeholder scheme, although in some circumstances the employer may wish to have a stakeholder scheme as well.

For example, the employer may wish to restrict access to the group personal pension plan meaning that the requirements for a stakeholder exemption would not he met. Access to a stakeholder scheme would then have to be offered to all other employees within three months of their starting work.

Under a group personal pension the employer usually collects employee contributions trom net pay and passes them on to the pension provider.

The way in which contributions work is as follows:

the tax relief on the contributions is the same as for individual arrangements, i.e. employees' contributions are paid net of basic rate tax and the employer's contribution is paid gross;
the level of contribution into the plan may be set as a percentage of earnings each month, and it is possible to set different levels of contributions fur different categories of employees; and
the employer's contributions could be set at a specified level, or they could match employee contributions up to a maximum level.

Under a group personal pension each employee individually decides whether to contract out or not.

All other aspects of a group personal pension are identical to those already discussed under the heading of personal pensions.

For more information, please contact us.