Will 2000 be the year the Government implements its promise to deliver stakeholder pensions? Certainly significant progress has been made. Progress which is already having an impact on pension companies. They see the potential new schemes as competition and are already streamlining charging structures to lessen stakeholder impact when its time comes (possibly as early as April 2001).
Stakeholder pensions are aimed at filling a gap in the market and, in particular, to tackle the pensioning problem of employees earning between £9k and £18k. Research indicates that more people in this salary range than in others are not making adequate pension provision. To encourage pension provision, stakeholder pensions are aimed to be cheaper and more user friendly than other pension types. They are voluntary at the moment but, may in future, be made compulsory as universal, Government funded, state pension benefits decline.
Regulations will affect both employers and employees
Employers with more than five staff who do not offer an occupational scheme or who have a group personal pension arrangement with restricted access or less than 3% earning contribution (employer and employee contribution combined) will need to:
- Identify a stakeholder pension scheme and help their employees have access to it. Identifying a suitable scheme will need to be an informed decision having taken appropriate advice.
- Watch they do not cross the threshold into supplying financial advice.
- Deduct pension contributions and pay them timeously to the nominated scheme.
Employees need to decide their best pension provision. Relevant considerations are:
- The minimum contribution to a stakeholder pension could be £20 per month.
- The Government is aiming for a stakeholder structure which can be more cost effective than many personal pension arrangements. They will be looking to the personal pensions industry to help transfers into stakeholder pensions where it is in the individual's interest.
- The stakeholder scheme will provide "decision trees" to help focus on issues, but these will not be equivalent to individual financial advice.
- The stakeholder pension provider will be able to charge a fee for giving financial advice but this will not be independent.
- Independent Financial Advisers will still need to carry out a comprehensive fact find (at a cost) if they are to offer advice.
- In a recent Scottish Life Survey, 75% of Financial Advisers said they would be reluctant to recommend stakeholder pensions (as opposed to other savings plans) to lower paid workers as long as pensions continue to affect the payment of means tested state welfare benefits.
We will continue to monitor progress towards stakeholder pensions. At the moment everyone is waiting. Then stakeholder schemes will need to be set up and approved before employers can make an informed choice. An April 2001 target looks ambitious.
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