From 1 October 2012 (when automatic enrolment started), employers no longer had to designate a stakeholder scheme. However, where someone was already a member of a stakeholder pension on 1 October 2012, the employer must continue to deduct contributions from their pay and pass these to the stakeholder provider, unless the member asks them to stop.
This analysis looks at some of the more technical requirements that apply to stakeholder pensions.
By 8 October 2001 an employer should have designated a stakeholder scheme for all relevant employees. A relevant employee is defined as any employee not excluded by way of the prescribed exemptions shown below.
What information did employees have to be given about designated schemes?
The information included the name and address of the designated scheme.
Does the employer have to deduct the pension contributions from the employee's salary?
Yes they do. The contributions must be remitted to the provider by 19th of the month following the contribution due date.
The employer can delay a request by an employee to vary contributions by up to 6 months from the previous instruction.
The stakeholder pension provider must advise the Pensions Regulator if the payment of contributions is late if this is likely to be of material significance to the Pensions Regulator.
A record of payments must be kept by employer.
Was membership of a stakeholder pension plan compulsory?
It was not a requirement that an employee must join a designated stakeholder scheme, only that a scheme was available.
Yes, there were the following exemptions:
Is there a maximum amount of annual charge?
Yes. For plans set up before 6 April 2005 the annual charge must not exceed 1% per annum. For plans set up from 6 April 2005 the annual management charge must be no more than 1.5% per annum for the first 10 years. After 10 years this must be reduced to 1% p.a.
What is the minimum contribution that can be paid into a stakeholder plan?
A minimum contribution of no more than £20, net of basic rate tax for individuals and gross for employers.
Stakeholder providers may not allow contribution to be paid by cash, credit or debit card to all stakeholder pension schemes. Bankers' Automated Clearing System (BACS) can be used.
Yes. There is no minimum frequency of contributions.
Yes, there can be no additional charges for a transfer out.
Yes, though it’s now known as COBS 19/2/2R
When a firm prepares a suitability report it must:
1. (in the case of a personal pension scheme), explain why it considers the personal pension scheme to be at least as suitable as a stakeholder pension scheme; and
2. (in the case of a personal pension scheme, stakeholder pension scheme or FSAVC) explain why it considers the personal pension scheme, stakeholder pension scheme or FSAVC to be at least as suitable as any facility to make additional contributions to an occupational pension scheme, group personal pension scheme or group stakeholder pension scheme which is available to the retail client.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.