Work Place Pension Schemes

Stakeholder Pension Scheme

Stakeholder pension scheme is a type of personal pension plan with minimum standards defined by law, targeted at individuals on more moderate incomes. It is flexible money purchase arrangement with capped management charges, and enable employees to continue making contributions to the scheme if they change jobs. Since they cannot make any charges for missed contributions, stakeholder schemes are created to accept low-value and irregular payments.

Employers with 5 or more employees are required to designate a stakeholder pension scheme if they do not offer them access to a good value occupational pension arrangement. It is not obligatory for the employer to contribute, although if they do, they will receive tax relief on these contributions.

One of the main advantages of this scheme for an employer is that he/she is not responsible for the administration of the scheme, the scheme provider is. The employer's liability is limited to the contributions they make on behalf of each participating employee, for example, if the investment returns are low, the employer is not responsible for making up the deficit.

How to set up a Stakeholder Pension Scheme:

  1. Make sure that you check the register of approved stakeholder pension schemes with the Pensions Regulator before selecting the scheme;
  2. Select your stakeholder pension scheme;
  3. Discuss your choice of scheme with your eligible employees and give them the name and address of it;
  4. Make payroll deductions;
  5. Inform your employees about payroll deduction arrangements;
  6. Send all contributions to the stakeholder pension scheme provider within the given time limits, making sure that you formally record the payments.

Occupational Pension Scheme

Occupational Pension Scheme is set up by an employer for its’ staff, and it is run by trustees. The employer is obligated to contribute to this scheme. One of the major advantages of these types of schemes to an employer is their flexibility, since they can be controlled and tailored to the employer's requirement. However, it can be done only within certain legislative boundaries.

If you decide to set up an occupational pension scheme for your employees, then you have two major choices regarding the type of scheme you choose:

Money-Purchase Scheme

The total fund is made up of contributions from the employer and employee. The employer pays a fixed amount determined by the scheme’s rules, with the fund paying an annual management charge for any administration costs (not covered by these contributions). Pension’s size depends on the value of the investment fund.

Final-Salary Pension Scheme

This scheme is generally based on the length of time the employee was in the scheme, and their final earnings at/or near retirement. Contributions from the employer and employees are held in trust and are joined to provide an investment fund, which is then deployed to achieve additional growth in value. Final-salary pensions provide guaranteed pension sums when the pension matures. If the investments do not provide sufficient funds, then the employer is responsible for making up the deficit. The scheme actuary determines how much the employer needs to contribute.

Group Personal Pensions (GPPs)

A Group Personal Pension (GPP) scheme is a collection of individual personal plans grouped together and run by the pension provider. Employers may wish to offer their employees a GPP in order to be exempt from having to give access to a stakeholder pension scheme. The GPP must have no exit charges, and, if requested, the employer must also deduct the employee's contributions from their pay and passes them on to the personal pensions provider. Moreover, the employer is not responsible for the administration of the scheme, the scheme’s provider is.

Pension Plans for Owners and Directors

There are several pension products created specially for directors and owners of businesses. however, some of them can also be set up for the benefit of employees.

Executive Pension Plans (EPPs)

Executive Pension Plans are set up by firms for its directors and key staff. Basically, it provides greater investment choices than many other types of pension plans, and also confidentiality, as it enables company directors to keep their pension arrangements separate from the main company pension scheme.

Small Self-Administered Schemes (SSASs)

Since 1991, for a pension plan to be considered a SSAS, there have to be fewer than 12 members and one or more of them must be a controlling director. Unlike other pension arrangements, there is no requirement to make regular contributions, which means that the firm can make contributions when profits and cash flow allow that. The firm can make contributions on behalf of the members and contributions are treated as a trading expense, thereby attracting corporation tax relief.

Self-Invested Personal Pension Plans (SIPPs)

SIPPs are very similar to insured personal pensions, but also allow direct investment in commercial property as well as in the UK and overseas quoted securities.