If you have five or more employees and do not yet offer a pension scheme, time is running out. Peter Maher and Nick Antoniou explain the choices that must be made before 8 October.
takeholder pensions are good news for staff but place onerous responsibilities on employers. If firms employing five or more people do not provide access to a stakeholder-friendly scheme by 8 October, they are liable to some very stiff fines.

But what are stakeholder pensions? They provide a means for individuals to save for retirement at a relatively low cost. The schemes were introduced in April this year and are strictly regulated to ensure they are good value, tax efficient, offer flexibility to the individual, and are easy to understand.

The maximum cost to the individual with a stakeholder plan is limited to 1% per year of their fund's value, which is less than many personal pension plans. No other costs can be imposed on the employee.

Employers are required to discuss and explain any proposed stakeholder scheme with employees, involving staff associations and trade unions where appropriate.

Once a scheme is in place, employers must offer it to all staff through their employment contracts. Employees must be allowed to join the pension plan within three months of starting work with the organisation.

Stakeholder schemes must include a default investment strategy with a standard level of contribution. This is also down to the employer, who cannot insist that employees make regular or even ad-hoc pension contributions, and must enable their staff to stop, start and vary their pension payments.

As it can be difficult to manage varying contributions, employers can insist that staff do not change the amount of their contribution within six months of a previous change.

Employers must deduct net contributions from employees' salaries and ensure that they reach the scheme promptly. Transfers must be made by the 19th of the month after that in which the deduction was made.

Employers who already run a pension plan may not have to offer a stakeholder scheme, but they must compare any existing pension with stakeholder requirements to make sure it meets the new regulations.

Employers with an occupational pension scheme (OPS) may be exempt from having to offer a stakeholder plan so long as staff can join the scheme within 12 months of starting with the firm.

Those offering a group personal pension plan (GPP) may also be exempt, so long as they contribute 3% of an employees' basic pay and enable staff to join the scheme within three months of joining.

The 3% employer contribution must be noted in the individual's contract. No exit charges or penalties can be imposed and contributions must be forwarded by the employer to the pension provider.

Firms operating either a GPP or OPS do not have to set up a stakeholder scheme for those aged under 18 or those within five years of retirement age.

While the regulations place responsibilities on firms to select and administer their pension scheme, they also provide an opportunity to offer staff a valuable benefit.

In an age when committed staff are very important, stakeholder pensions will play an important part in any reward package. But with just a short time to go before the deadline, employers should not delay in setting up the scheme that is right for their staff and business.

What's at stake

  • Firms with five or more employees, be they part-time or full-time, must provide access to a stakeholder scheme
  • Employers must offer a stakeholder pension by 8 October 2001
  • Employers must make it easy for staff to build up pension savings
  • The Government expects employers to offer employees a pension saving strategy
  • Once established, firms must monitor their chosen scheme to ensure it continues to meet stakeholder requirements
  • Employers can be fined up to £50 000 for non-compliance and individuals (eg trustees) can each be fined £5000
  • Employers offering occupational pension schemes or group personal pension plans may be exempt, but they should check that they meet the exemption requirements
  • Employers do not yet have to contribute
  • Two schemes, both supported by the ECA, are available specifically for contractors: the m&e industry stakeholder pension and the JIB pension scheme
  • The JIB pension scheme was introduced in 1988 and is an OPS; for details call 020 8300 3009
  • The m&e industry stakeholder scheme is provided by Friends Provident; for details call 0800 169 4826