Originally published April 2006
It is now 15 years since Robert Maxwell dropped/fell/was pushed from The Lady Godiva and so triggered the pensions scandal within the Mirror group. Since then pensions have rarely been out of the headlines. If your company operates stakeholder or group personal pension arrangements, you may think that you are immune from change but Robert O’Donovan is not so sure.
If you don’t run an occupational pension scheme, then you must have been feeling very pleased with yourself in recent years. If you have a group personal pension (GPP), the provider does most of the work and, as long as you pay a 3% contribution, there is no requirement to operate a stakeholder arrangement as well. Further, you can make your 3% contribution conditional on the employee contributing up to 3% as well.
For most companies operating stakeholder, the burden is less than dramatic for the very simple reason that reports indicate that the majority of stakeholder pension schemes have no members and no contributions. The facility is simply there to be taken if anyone wishes to use it but, given there is no requirement on the company to make contributions, there is little incentive for the employee to play his part.
There are indications that this world is going to change and recent reports indicate that political pressure is growing for compulsory employer contributions to group personal pensions or stakeholder arrangements. What level of contributions are likely to be demanded? Nobody knows but possible solutions are 3% to match the group personal pensions stakeholder exemption or matching up to 6%, being the protection given on a TUPE transfer, or even 8% being the contribution recommended in the Turner report, split 5% employee (with tax relief) and 3% employer.
This could be a severe blow if introduced in a short period without warning. Over the coming years, one way round the problem might be to designate part of any pay increase awarded to employees as the employer’s contribution to a stakeholder pension. For example, if you were going to award employees a 3% pay rise in any event, you could give them only 2% and put the other 1% into the pension fund as an employer contribution. By doing so, you in reality push the cost onto the employee.
Is GPP better or worse than stakeholder? We’re probably not allowed to comment on financial implications but, from the legal angle, there are advantages in stakeholder. For example, is an employer with a GPP responsible for selecting a well performing provider, monitoring and changing providers? Answer – not yet decided, but possibly. In the case of stakeholder, there are statutory exclusions of employer liability for selecting and monitoring providers. So to a lawyer, stakeholder has an edge over GPP, but then legal liabilities are not the whole answer.
© RadcliffesLeBrasseur
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