Dust off your stakeholder schemes – they could be making a comeback, writes Ian Luck.
The ghost of stakeholder pension schemes past is still with us. Some say it has haunted the pensions world since 2001, when legislation made it a requirement for employers with more than four employees to make a grouped stakeholder pension available to their staff, with the threat of a £50,000 fine for non-compliance.
This measure introduced over 300,000 new stakeholder pension schemes to the market. It would be a great achievement if it weren’t for the fact that the vast majority of these schemes have no members! The reason is obvious: membership was not compulsory and employers were not required to pay into the schemes. However, 2012 may change all of that, heralding the resurrection of stakeholder schemes in a new guise.
They’re back – and this time it’s personal
The next Government initiative in pension planning will arrive in 2012 – the National Pension Savings Scheme, or ‘Personal Accounts’ as they are likely to be called. The main differences with this scheme will be compulsory membership and employer contributions. It’s understood that employers will be required to auto-enrol all their staff into the new arrangements and make a contribution of 3% of salary to the plan to match the employee’s 4% contribution and tax relief of 1%. Employees can opt out, but the Government is relying on most people to stay in.
Less well publicised to date is the fact that if an employer has an adequate pension scheme already in place, staff will be autoenrolled into that scheme instead of the new plans.
Given that 80% of private sector final salary pension schemes are, according to the Association of Consulting Actuaries, already closed to new employees, it seems improbable that any of these schemes will still be open in 2012. Auto-enrolment will not swell the number of members within what is arguably the best form of pension plan. However, most members have replaced defined benefit arrangements with money purchase schemes and these will be included in this legislation. Employers will need to be aware of the additional costs and administration involved.
Problems of auto-enrolment
Employers who offer staff money purchase occupational pension schemes will be required to auto-enrol employees into these arrangements, which will lead to a dramatic increase in membership. The same will happen to employers who offer Group Personal Pension (GPP) schemes, although there is a problem under EU law which prevents compulsory membership of contract-based arrangements. However, it shouldn’t be difficult to find a solution by 2012, and it is extremely unlikely that such schemes will be exempt from the requirements.
Group Stakeholder Pensions (GShP) are a form of GPP. So, assuming a solution is found to enable auto-enrolment into GPPs, this should work for contract-based GShPs as well. Surely employers will prefer to pay into an established GShP, in their company’s name, with their provider of choice, rather than a Government-based arrangement? If employers are compelled to make staff contributions, then they should surely receive some benefit? This is unlikely if employers pay into the national scheme. Perhaps by making their stakeholder pensions perform to the standards of a decent quality scheme in preparation for 2012, it’s time for employers to give stakeholder plans a new lease of life.
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