Administering stakeholder pensions
Section 1. What are stakeholder pensions?
They are pension schemes that were introduced on 6th April 2001. If you employ five or more people and you do not currently offer a suitable pension scheme, you must formally designate a stakeholder scheme for your employees. Any employer caught by the stakeholder requirements, for example as a result of taking on a fifth employee, will have three months to designate a scheme.
Designation does not mean that you have to contribute to the scheme but you must allow employees to contribute by payroll deduction.
You do not have to provide access for any employee who has worked for you for less than three months or earns less than the National Insurance lower earnings limit.
If I have to designate a stakeholder pension scheme what must I do?
- You must choose a registered stakeholder pension scheme like the NFU Mutual Stakeholder Pension Plan.
- You must give your employees and any organisations representing them some information about the Plan and discuss your choice with them.
- You must formally designate your preferred stakeholder scheme and then give the relevant employees the name and address of the scheme.
- We will supply booklets covering the key features of the plan and if necessary our Financial Consultants will talk to any employees who need financial advice.
- You must set up payroll deduction facilities for those who wish to contribute.
- You must make sure you make any payments to NFU Mutual on time.
- You must keep records of the employee deductions and payments to the Plan.
- You must check regularly that the NFU Mutual Stakeholder Pension Plan is still registered as a Stakeholder Pension Plan. An annual statement will be sent to you confirming if the NFU Mutual Stakeholder Pension is still registered.
What information about the NFU Mutual Stakeholder Pension Plan must I give to my employees and their representatives?
You must tell them NFU Mutual's name, address and telephone number. Our e-mail address and your local NFU Mutual contact might also be useful. NFU Mutual will provide you with leaflets for you to give to your employees.
You must not give your employees any advice as to whether or not they should join the NFU Mutual Stakeholder Pension Plan. NFU Mutual will provide you with documents giving information about the Plan for you to give to your employees.
How are contributions paid to the NFU Mutual stakeholder pension plan?
You must offer the facility to deduct your employees' stakeholder pension contributions from their pay and forward the contributions to NFU Mutual on their behalf. However, your employees can choose to pay their pension contributions directly to us if they wish.
Who decides how much my employees contribute?
Your employees must each decide if they wish to contribute to the NFU Mutual Stakeholder Pension Plan, and if so, how much they wish to contribute and how often.
There is no minimum contribution to the NFU Mutual Stakeholder Pension Plan, and contributions can be made weekly, monthly or at other intervals. One-off payments can be made at any time.
The contribution amount deducted from pay can either be a fixed sum or a percentage of gross pay. However, we would encourage regular fixed amounts in order to minimise your administration burden.
Are there any rules governing changing the amounts an employee contributes?
You must decide yourself on the process and the rules (subject to certain conditions below) you want to apply if one of your employees requests a change to the amount he contributes to the Stakeholder Pension Plan. You must explain what these are to your employees. Things you may wish to consider include:
- How does the employee tell you he wants to change or stop his contributions - e.g. by telephone, in writing or in person.
- Who must he contact about changes to his contributions.
- How often are you willing to allow him to change his contribution.
- How much notice is required (see Section 2).
Statutory conditions:
- The amount the employee contributes can be changed at the individual employee's request.
- You are not obliged to agree to a change more than once in any six month period, although you can if you wish.
- Notwithstanding any limit on how often you are willing to accept changes to an employee's contributions, the employee can ask for payroll deductions to stop at any time.
- Any change must be made no later than the pay period after the one in which they made their request.
- If you refuse to accept the employee's request to change the amount contributed, then you must write to the employee and explain why. If the request has been refused because more than one change has been made within the last six months and you are not willing to accommodate this, then you should tell the employee when they can next request a change.
- You cannot make any charge for making changes to the amount an employee contributes to a stakeholder pension scheme or if the employee wants to stop paying into a stakeholder pension scheme.
How do I pay the contributions to NFU Mutual?
Contributions can be paid by cheque, direct debit, direct credit or standing order. Given the statutory time limits described in Section 2, for smaller schemes we recommend direct debit and for large schemes where the employer is registered with BACS, we recommend direct credit. Direct credit payments should use the standard BACS payment record for making stakeholder contribution payments.
What if one or more of my employees want to contribute to a different stakeholder pension scheme?
You are not obliged to offer payroll deductions into any stakeholder pension scheme other than one you have designated. However, you can offer to make payroll deductions into the plan if you wish.
What if I decide to designate a different stakeholder pension scheme?
You can designate more than one stakeholder pension scheme if you want to, but if you want to cancel your designation of the NFU Mutual Stakeholder Pension Plan, you must have designated at least one other scheme first.
If you cancel your designation of the NFU Mutual Stakeholder Pension Plan, you must continue to provide a payroll deduction facility into it for those employees who do not wish to redirect their contributions into the new scheme.
What must I do if the NFU Mutual stakeholder pension plan is no longer registered as a stakeholder pension scheme?
You are responsible for checking, at reasonable intervals (we suggest once a year), that the scheme is still registered as a stakeholder pension scheme. This aside, we will inform you ourselves if the NFU Mutual Stakeholder Pension Plan ceases to be a registered stakeholder scheme.
If this were to happen, you would have four months in which to decide on a new stakeholder pension scheme to designate for your employees.
Section 2. Payroll contributions
This section applies to all employers who are either contributing or deducting contributions from an employee's net pay and paying them into the employee's personal pension or stakeholder pension scheme.
How do you calculate how much to deduct and pay to NFU Mutual?
It is your responsibility to ensure that the relevant fixed amounts or percentages of pay (if applicable) have been calculated correctly and that any contributions are forwarded to NFU Mutual.
Any contributions paid by the employee must be paid to NFU Mutual net of basic rate income tax. For example, if an employee chooses a gross monthly contribution of £100, you would actually deduct £100 less basic rate income tax monthly from his net pay and pay this to NFU Mutual. For example, currently the basic rate of income tax is 22% and so the net amount would be £78.
NFU Mutual will then claim the income tax relief at the basic rate for all employees' contributions and the HM Revenue and Customs will send these tax refunds directly to NFU Mutual. Higher rate taxpayers must claim the balance of tax relief due to them via their annual tax return.
Employer contributions must be paid gross.
What do I do if the contribution is more than the employee's net pay?
Personal pension and stakeholder pension contributions are classed as voluntary deductions so they must be deducted from employees' pay after tax, National Insurance and other compulsory deductions. Tax credits such as Working Families' Tax Credit do not count as pay and cannot be used to pay payroll contributions to a personal pension or stakeholder pension plan.
If there is insufficient net pay to make the full deduction, then you can arrange for as much as the employee can afford, providing that you, the employee and NFU Mutual all agree to this.
Are there any time limits for making payments to the NFU Mutual personal pension or stakeholder pension plans?
Yes. There are set time limits for paying over the employees' and any employer's contributions to a pension scheme.
You must pay over your employees' contributions to NFU Mutual within 19 days of the end of the month in which the payroll deduction was made.
For example, deductions made in February will have to be paid by the statutory due date of 19th March at the latest, regardless of how often you actually make the payroll deductions from your employees.
If you also contribute to the scheme, you can have a separate statutory due date for your own contributions. However, once you have chosen the date you must stick to it. You might therefore find it easier to have the same dates for both your employees' and your own contributions.
It also makes sense to pay contributions over to NFU Mutual as soon as possible so that if there are any problems they can be sorted out before the statutory due dates.
What records must I keep?
You must keep up-to-date records of the amounts and the dates of contributions from your employees and yourself. You must also specify the statutory due dates and send details to NFU Mutual.
If there are changes to any of the amounts, or if any individuals are added to or removed from the payroll deduction facility, you must update the record and send a copy to NFU Mutual as soon as possible and before the next contribution payment date.
NFU Mutual will then send you an updated schedule of payments for your records.
Who monitors the payments I make?
NFU Mutual monitors the payments you make using the schedules of payments that you send to us to check that the correct payments are made and that they are received by the due dates.
NFU Mutual is required to notify the Occupational Pensions Regulatory Authority (OPRA) if payments are later than the statutory due dates, are not made or are incorrect. OPRA will then investigate the reason.
It is an offence for which you may be fined or taken to court if you do not:
- set up a record of the payments you make to NFU Mutual
- keep the record up-to-date
- send a copy of the record to NFU Mutual
- tell NFU Mutual about any changes to the record and send an amended record
- make the correct payments on time
What happens when I set up a scheme?
An application form must be completed for each employee who wishes to join your scheme, which will include all the contribution details required under the new legislation.
Upon receipt of the application form, NFU Mutual will then check the application to make sure that everything is in order and when this is done we will contact you to agree a commencement date. We will then send you a formal schedule of contributions, for your records you should not commence deduction of contributions from your employees' pay until this has been completed and you must ensure that any payroll deductions agree with the schedule of contributions that we send you.
What happens if I want to make a change?
Give us a call on the Freephone number 0800 622 323 or write to us to explain what changes you want to make. If you want to admit a new member to the scheme a full application form must be completed.
As before, NFU Mutual will check the details to make sure that everything is in order and when this is done we will contact you to agree an effective date. We will then send you a revised schedule for your records.
The value of investments can go down as well as up. This information is based upon NFU Mutual's understanding of taxation law and practice. Tax legislation is subject to change. The value of any reliefs available depends upon each individual's financial circumstances.
Your enquiry may result in a call from an NFU Mutual Financial Consultant, who advises on NFU Mutual products and services, and in special circumstances those of other providers. For security and training purposes telephone calls may be recorded and monitored.
NFU Mutual is authorised and regulated by the Financial Services Authority.
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