The CIPD is warning companies that those with more than four employees could face very large fines unless unless they offer their staff stakeholder pensions. Four months after stakeholder pensions became mandatory, many organisations may still be ignorant of their responsibilities. However, the CIPD are offering a guide through this increasingly complex area: “Pensions”, written by Andrew Scrimshaw, the technical manager in KPMG’s specialist pensions division and an experienced commentator.

Even small firms have to help employees who cannot belong to an occupational pension scheme or a group personal pension scheme. Failure to comply can result in fines of up to £50,000 levied by Opra, the Occupational Pensions Regulatory Authority. However, the highest fines are aimed at persistent and blatant offenders rather than those who inadvertently contravene the rules.

Andrew Scrimshaw states: “Pensions are far more complicated now than they used to be. There is so much change going on at the moment, involving not just stakeholder pensions but also ongoing issues of sex discrimination and pressures encouraging employers to move away from final salary pensions. The Government has recently launched a project to simplify pensions legislation. If it is successful, it should remove some of the complexity that both employers and the public find so off-putting.”

Whatever pension is taken up, Scrimshaw says, the bottom line is that people are likely to have to put more into their own pot if they want a comfortable retirement. Final salary pensions – giving a pensioner a guaranteed proportion of his or her working income – are declining as the financial and regulatory burden on employers grows.

Apart from the cost of guaranteeing a set pension, a new accounting rule coming into effect in 2003 will mean that company pensions funds have to show yearly changes to the level of pension funding. “Assets and liabilities will have to measured at market value and the resulting surplus or deficit recognised immediately on the company balance sheet, the book says. “This will cause the balance sheet figures to fluctuate from year to year.”

Significant shortfalls in assets could affect the employer’s bank covenants or dividend payments. Money purchase schemes would not have this effect – and the outcome, Scrimshaw says, could be to hasten the switch away from final salary schemes. But if employers can choose the level of their financial burden, Scrimshaw says, they cannot escape the administration. Stakeholder pensions do not demand contributions, but do demand that companies consult employees about the choice of scheme, deduct payments from salaries and keep detailed paperwork constantly up to date.