Group Pensions
What is a group personal pension scheme?
It's a pension scheme arranged by an employer where contributions are paid into a plan owned by the employee. The money in the plan is invested on the employee's behalf, and when they retire the fund is used to buy an annuity which gives a regular income for life or can be used to provide an unsecured pension (or an alternatively secured pension if they're 75 or over).
You collect the contributions from your employees and administer the scheme, and contributions benefit from tax relief (at the employee's highest rate). You can choose to make contributions to the scheme, and if your contributions are at least 3% of the employee's basic pay it will meet your obligations under the stakeholder pension regulations and you won't be legally obliged to provide any other pension plan for your employees. As each employee has their own plan within the scheme, they can take it with them if they leave your employment.
What is a group stakeholder pension scheme?
Stakeholder pensions were introduced by the Government in 2001 to provide a low-cost, privately funded supplement to the basic state pension. The legislation requires that any employer with five or more employees makes either a stakeholder pension or another suitable pension scheme available to its employees.
Legislative requirements
Group Stakeholder Pension Schemes should be government registered, and meet all the legislative requirements, including:
· For the first 10 years charges for the scheme won't exceed 1.5% of the total fund value and no more than 1% after that.
· The scheme must accept any contribution of £20 or more. Contributions can be paid weekly, monthly or as one-off payments, and they can stop and start without incurring charges.
· There should be no charges for transferring in or out of a scheme, or for switching investments between funds.
· There must be a suitable default investment option for members who don't want to make their own investment choices.
A stakeholder pension enables each employee to build up an individual pension fund in their own name, making their own choice about how much they contribute. The money in the fund is invested on the employee's behalf, and when they retire the fund is used to buy an annuity or an unsecured pension (or an alternatively secured pension if they are 75) which gives a regular income for life. Part of the fund may also be used to provide a tax-free lump sum.