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Useful Information

Pensions

Offering a pension has a positive effect on employees

A good pension scheme should not be looked at as an expense, but as an investment in your business. Rewarding and motivating employees with good pension provision sends a strong signal of commitment to staff, and can aid motivation, recruitment and retention of the best employees.

A pension provided, and contributed to, by an employer regularly tops polls of employees as the most valuable benefit that an employer can offer. This trend is set to continue due to the growing awareness amongst individuals of the need to take responsibility for one's own future retirement needs.

Offering a pension to employees makes economic sense

Pensions have attractive tax benefits.

For the employee this means that they get the full value of any contributions that you make for them. For example, if you, as an employer, contribute £1000 towards an employee's pension, £1000 will be invested in their plan. If you were to put that sum towards a pay rise, the employee would only get £680 in their pay packet after National Insurance and income tax deductions (based on 2002/2003 tax and NI rates). That's £320 less.

For the company, contributions can be offset against corporation tax. This means that a £1,000 contribution towards pensions will cost the company, assuming they are paying 30% full rate corporation tax, only £700.

Stakeholder Pensions

All companies with 5 or more employees must provide access to a stakeholder pension (unless otherwise exempt)

Under the Welfare Reform and Pensions Act 1999 all companies with 5 or more employees (and who are not exempt) must:

• discuss the choice of scheme with relevant employees before designating a scheme;
• provide access to a stakeholder pension scheme for their employees;
• inform their employees about the new scheme;
• deduct pension contributions from employees' pay packets and pass them promptly to the pension scheme (if required by the employees). There may be fines for delay;
• maintain a record of the payments made to the stakeholder scheme provider.

Employers do not have to offer employees access to a stakeholder pension scheme if:

• they employ fewer than 5 employees;
• they already offer an occupational pension scheme to all staff aged between 18 and five years before the normal pension age of the scheme. Staff must be able to join within a year of starting work;
• they offer to pay at least 3% of salary into personal pensions on behalf of all staff aged 18 or over who have worked at their company for the last three months. To qualify there must be no penalties for stopping payments or transferring into another scheme.

These exemptions will be reviewed after 3 years. Even if an employer is exempt they can still provide access to a stakeholder pension scheme if they wish.

The Occupational Pensions Regulatory Authority (Opra) provides an online employer decision tree to help employers decide if they are exempt.

Further information

There is a great deal of information on the Occupational Pensions Regulatory Authority's (Opra) website , which has a section dedicated to stakeholder pensions, and includes information on:

do all employers have to perovide stakeholder pension?;

what do employers have to do?;

designating a stakeholder scheme;

deducting contributions from employee salaries;

record keeping; and

an on-line decision tree to help employers decide if they have to offer a stakeholder pension.

The Financial Services Authority's (FSA) guide - 'Helping your employees with their pension options - a guide for employers offering stakeholder pensions or group personal pensions' - provides useful information for any employer unsure of their