Insight: Pensions – Seconds away.

From next month the biggest pension shake-up this country has witnessed in decades takes place. That’s when the government’s big idea – stakeholder pensions – comes into force.

These are aimed at lower to medium earners – those earning between £10,000 and £20,000 per year. Approximately five million people have been targeted as potential investors, says the Department of Social Security.

Ministers say the reason they are introducing the stakeholder scheme is to get more people to plan for their future. They are also trying to reduce the pension burden.

There are more than 10 million pensioners in the UK and an annual pension bill of £70bn. What alarms the government is how much that bill could grow over the next few decades as the country’s population ages.

Today there are, roughly, three people of working age to support each pensioner. By 2040 that will be down to two.

Between 1995 and 2030, the number of people aged 65 or over in the UK is predicted to increase by 57%.

Even if the pension problem here is not as acute as that facing Germany and France, it is clear that something needs to be done to head off a potentially big problem.

But by focusing on the big picture, the new plans are causing some disquiet on the ground.

With just weeks to go to the introduction of the stakeholder scheme, there are fears that it could become a bureaucratic nightmare for the firms involved and increase the demands on the payroll and auditing departments.

‘There will be an administrative burden,’ says Teresa Sienkiewicz, chairman of the Pensions Research Accountants Group. ‘Every employer will need to make sure they have proper controls in place to make sure the payments are accurately filed. If you don’t do it you will be fined.’

Stakeholder pensions come into effect on April 6. From that date people will be able to pay contributions into a designated stakeholder scheme.

Currently there are 33 schemes approved by the pensions overseer, the Occupational Pensions Regulatory Authority. Approved schemes include those run by Abbey National, Marks & Spencer, the TUC and Virgin.

Under the new rules, employers must allow employees access to a registered stakeholder pension scheme. This is a process that will involve choosing a scheme, discussing the scheme on offer, make arrangements to deduct contributions from employers’ pay and recording the payments made.

This must all be done no later than 8 October 2001. If not, companies face a fine of up to £50,000 from OPRA.

As both the April and October deadlines approach, it is becoming clearer the introduction of the stakeholder pension has ramifications for accountants.

The first task for accountants is to remind clients about the impending deadline amid ignorance that 6 April marks a pension watershed. This has proved anything but easy.

‘We have been telling people for many, many months and it is only now clients are taking it seriously,’ says Ashley Hayman, senior partner at Cassons, a firm of chartered accountants based in Manchester and Burnley. ‘People have left it very late.’

Jocelyn Lynch, managing director of Horwath Clark Whitehill Financial Services, has found a similar picture.

‘We have been telling our clients about it for the past two years,’ she says.

Beyond informing clients who, so far, have not wanted to listen, it is also clear the introduction of stakeholder pensions will place burdens on companies administrative systems.

Effective information technology and backroom operations will need to be put in place to ensure companies comply with the new regulations.

This could be particularly burdensome for the smaller companies, as stakeholder pensions are available to the employees of any firm that employs five or more people.

The fear is that many firms do not have the required level of advice to hand. One way out of this would be to spend more on either technology or personnel, though this may not always be an option.

Sienkiewicz believes payroll will come under particular pressure. Employers have to ensure that all contributions reach the pension provider by the 19th of the following month. If not, the provider can report the employer to OPRA and the employer could then face a fine.

As the pension is aimed at the lower earners there is a fear that someone contributing to a stakeholder scheme could be taken sick, or on maternity pay and not afford the monthly payments, even though they begin from as little as £20.

What happens, and who is liable, in such a scenario is unclear.

What is clear though, is that OPRA will use its power to implement financial disciplines.

‘We do have the power to fine and we will use it,’ says Nick Edmans, communications manager with OPRA.

How much that fine will total will be left to the individual case but OPRA is talking tough.

‘We will take a view of the background of the offence, if there is strong evidence that somebody was trying to comply with the law, whether it is a first offence or if there were mitigating factors.’

And as the stakeholder pension is a flagship government policy, you can expect that the scrutiny on potential malpractice will be great.

It may not be all doom and gloom though.

Hayman says that one of the positive effects of introducing the stakeholder scheme is that it has made a lot of companies more aware about pensions when they were previously ignorant of them.

This greater awareness, he says, should be used to get companies interested in offering a personal pension scheme for employers.

Although many of the larger companies offer a pension as an incentive to recruit

and retain staff, this practice is not so well spread in the medium and smaller market. Offering a pension may cost more but Hayman feels it would be in the employers’ long-term interests.

‘If you bring in a personal pension, you don’t have to buy a stakeholder scheme and you have given staff a decent pension plan.’

‘We are entirely sure that they would get value for money because it will do more for the morale of your workforce,’ he says.


AN EMPLOYER’S OBLIGATION An employer must: – Choose a registered stakeholder pension scheme – Discuss the choice of scheme with employees – Give employees the name and address of stakeholder scheme – Arrange to deduct contributions from employees’ pay for those who have chosen a designated scheme. – Inform employees about payroll deduction arrangements – Make payroll deductions – Meet the time limits for making contributions within the scheme – Record all payments – Employers must give access to a stakeholder pension by 8 October, 2001 – If a firm was previously exempt, but is no longer exempt after 8 October, they will be given three months to find a scheme


A firm will be exempt if: – It employs fewer than five people – An occupational pension scheme is offered to all staff within a year of joining the company – Access to a personal scheme is offered (under various conditions) – An occupational scheme is offered to some staff and personal pension scheme is offered to the rest.


– Stakeholder pension scheme registration – contact the Opra helpline on 01273 627 600 – Tax approval and contracting out, scheme level – contact the PSO helpline on 0115 974 1777 – Tax repayments – contact FICO on 0151 472 6109 – DSS statutory requirements – contact 0845 9 150 150.

Related reading