We’ve all heard of the urban myth – a fantastic fusion of imagination, primal fear, base superstition and rumour.
A worthy successor to the urban myth is the stakeholder myth – a fantastic fusion of imagination, primal fear, base superstition and rumour.
At the risk of being boring, the Occupational Pensions Regulatory Authority (OPRA) would like to debunk some of the more common stakeholder myths:
- Don’t worry about the 8 October deadline – it’s going to be put back
Sorry folks – the 8 October is upon us and the deadline is staying put
- It’s a nightmare – you have to set up your own stakeholder pension scheme
Not true. All you have to do is provide access. That means making it possible for your staff to contribute to a stakeholder pension offered by a pension provider – through the payroll. You don’t have to set the thing up.
- Employers have to contribute to stakeholder pensions.
False. There is no requirement for employers to contribute to a stakeholder pension. Obviously it would be good for your staff if you did – but it’s not compulsory. However if an employer chooses to use a group personal pension arrangement instead of a stakeholder pension then they have to contribute 3% of salary.
- If the stakeholder pension you offer to your staff performs badly you could be held responsible?
No. The legislation exempts employers from responsibility for the performance of any stakeholder scheme offered to relevant employees.
- Employers should see a financial adviser before offering a stakeholder pension.
Not necessarily. If your company’s circumstances are complicated, then it might be worth getting advice – perhaps you’re not sure whether your existing pension arrangement gives you exemption. However, for many employers the situation will be very straightforward and detailed financial advice will not be required.
- If you do it wrong you could end up with a huge fine
You could well end up with a fine if you fail to set one up and you’re not exempt. But it is not a complicated process and there are only a few simple rules – the most important being to pay contributions in on time (by the 19th day of the month following the one in which they were deducted from pay).
- Dealing with stakeholder will cost you a fortune
Not at all – for most employers it will only involve a few hours work spread over a week or two. Many providers will sort the whole thing out for nothing. Some employers might choose to pay for financial advice – but don’t assume you have to.
- You would be much better off with a group personal pension
A group personal pension might be an easier option for an employer if they already have one in place and if only small changes are needed to get an exemption from stakeholder. From an employer’s point of view you have to contribute 3% of salary to a GPP in order to be exempt. That is obviously an advantage to the employee, providing it is not eaten up by higher charges. Employers don’t have to contribute anything to a stakeholder pension.
- GPPs have more investment options
GPPs may have more investment options, but you may have to pay higher charges to take advantage of these. Most stakeholder schemes offer a good range of investment options as well as a default option for those who don’t want to decide how their contributions are invested.
- Stakeholder pensions have been a disaster – no one is taking them out
Not true – 300,000 stakeholder pensions had been taken out by the end of July…pretty good considering they have only been on sale since April.