Stakeholder pensions - technical summary

Stakeholder pension schemes were introduced on the 6 April 2001.
Key facts
  • Stakeholder pension schemes could be set up from 6 April 2001
  • Unless exempt, it was compulsory to designate a scheme from 8 October 2001
  • The requirement to designate a stakeholder pension scheme stopped on 1 October 2012.

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.

Employer access

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.

Were there any exemptions to the stakeholder regulations?

Yes, there were the following exemptions:

  • Where a new employee was taken on and this resulted in the workforce increasing to 5 employees, the employer had 3 months to comply. This included all employees including directors, but not self employed people.
  • The employees had to be able to join the occupational pension scheme within 12 months of starting work.
  • The occupational pension scheme could be closed to employees under 18, or those within 5 years of retirement.
  • There was no access requirement for employees who had declined to join the occupational pension scheme in the past or had joined and then opted out.
  • The employer could have insisted that the employee contributes 3% of basic pay as well. If an employee refused, the employer was exempt from access requirements. However the employer could then have offered to contribute less than 3% (with or without an employee contribution) and still be exempt.
  • Personal pensions set up before 8 October 2001, where an employee was required to contribute more than 3%, could have qualified for an exemption from the access requirements where there was a matching or higher employer contribution. This did not apply to new entrants after 8 October 2001 who could only have been required to pay a maximum of 3%.
  • Access had to be available to all relevant employees except those under the age of 18.
  • Personal pensions must have no exit penalties except for those that would have been applied if no transfer had been requested, contributions had continued or any market adjustments where the investment is with-profits.
  • The employee had not worked for the employer for more than 3 months in a row.
  • The employee fell within the access exemptions for an occupational pension scheme of the employer.
  • The employee's earnings had not reached the lower earnings limit for 1 or more weeks in the last 3 months.

Minimum standards for stakeholder pensions

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. 

  • There can be no allowance for any bid/offer spread or member charge.
  • Any charge for advice must be included in the 1% p.a. or be charged separately.

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.

Is it possible for contributions to start or stop without there being any penalties?

Yes. There is no minimum frequency of contributions.

What are the rules on investments?

  • A default investment option must be available to members.
  • A statement of investment principles must be produced.
  • A 'lifestyling' investment option must be available.

What information must be produced annually?

  • An annual declaration - The Trustees or manager must sign a declaration confirming that stakeholder regulations are being complied with.
  • Annual benefit statement - Each member must receive an annual statement. This must include the value of their fund, the amount of contributions paid in and the dates paid, the amount of any investment gain or loss and details of the charges deducted.

Can money be transferred out of a stakeholder plan without any additional penalties?

Yes, there can be no additional charges for a transfer out.

Frequently asked questions

Yes, though it’s now known as COBS 19/2/2R 

Suitability
COBS 19.2.2R01/10/2012RP

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.

Note

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.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.