Stakeholder pensions

The Government has announced that the charge cap on the new stakeholder pension products that are to be introduced from April 2005 will be 1.5% for the first ten years, in order to allow the cost of basic pensions advice to be included in the charges. The cap will reduce to the current 1% limit after ten years. Source:

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...back to 18 June 2004


Source: http://www.gnn.gov.uk/80256CAC005CC584...

Employer fined for not offering a stakeholder pension scheme

For the first time since stakeholder pensions were introduced, the Occupational Pensions Regulatory Authority (Opra) has fined an employer for failing to provide its employees with access to a stakeholder pension scheme. Since October 2001, employers with five employees or more have had to offer their staff access to a stakeholder pension scheme or alternative pension arrangements.

Opra has imposed a £;10,000 fine on Flowfood Limited for non-compliance with stakeholder legislation. Flowfood Limited has around 300 employees but, for over two years following the introduction of stakeholder regulations, did not offer its staff access to a stakeholder scheme. In March 2003, a Flowfood employee wanting to save into a stakeholder pension complained to Opra that the company denied him access to a scheme. Opra subsequently contacted Flowfood on many occasions to make sure they complied with the law. However, the company failed to provide Opra with any evidence that they had formally designated a stakeholder scheme.

The Opra board determined that the level of the fine imposed reflected both the number of employees who were denied access and the length of time Flowfood took to provide an adequate stakeholder arrangement. Opra has the power to fine employers up to £;50,000 for failing to comply with stakeholder legislation. In this case, the £;10,000 fine serves as a reminder to organisations with over five employees that, unless exempt, they must comply with the law.

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...back to 21 May 2004


Source: www.opra.gov.uk/mediaAndPublications/pressreleases/pn04/pn04-03.asp

Equal treatment under pension schemes

Under the provisions of Schedule 5 of the Social Security Act 1989, employment-related benefit schemes, including occupational pension schemes, must comply with the principle of equal treatment on the grounds of the sex of the scheme members. Employees currently protected are

• women taking ordinary maternity leave and receiving SMP
• women taking additional maternity leave and receiving contractual maternity pay
• employees taking "family leave", including paternity and adoption leave, for which the employer has made contractual, but not statutory, payments to the employee.

The rules require employers to treat, for pension purposes, women taking paid maternity leave and employees taking family leave and receiving contractual payments as if they were in full employment and receiving their normal pay.

The effect of the rules is that

• employers' contributions to the occupational pension scheme must be calculated as if the employee were working normally under the contract during the period of paid leave and receiving normal pay
  
  
• if the employee is required to make contributions under the scheme, they must be based only on the statutory and contractual payments that are paid during the period of paid leave
  
  
• unless the terms of the pension scheme require otherwise, the employer is not required to make contributions during a period of unpaid leave.

The Pensions Bill, currently before Parliament, has been amended to extend these rules to employees who are on paternity or adoption leave and receiving only SPP or SAP in order to bring them into line with those that apply to SMP. As a result, where employees are on paid paternity or adoption leave, the employer will pay contributions as if the employee were working normally and receiving the normal pay for doing so.

These new provisions will take effect at a time to be announced, subsequent to the Pensions Bill receiving Royal Assent.

Source: www.dti.gov.uk/er/workingparents/htopics.htm
...back to 30 April 2004

Reduced rate election

A change has been made to the procedure to be followed where a member of a contracted-out salary related pension scheme holds a married woman's (widow) reduced rate election, i.e. NICs are deducted using Table Letter E.

Where a married woman or widow with reduced liability

• changes her status and starts paying NICs at the contracted-out rate, and
• later leaves contracted-out employment in circumstances which require a notice of termination,

booklet CA14, paragraph 4.57 currently says:

"Any notice submitted under the circumstances shown above should show the period of Contracted-out employment as starting

• on the date on which she first entered the contracted-out employment, and
• not the date on which she started to pay contributions at the contracted-out (category D) rate."

The replacement instruction is as follows:

"Any notice submitted under the circumstances shown above should show the period of Contracted-out employment as starting

• on the date on which she started to pay contributions at the contracted-out (category D) rate."

The CA14 will be amended accordingly when it is next reissued.

Source: www.inlandrevenue.gov.uk/nic/married-rre.htm

...back to 23 January 2004

Pensions tax simplification

There are currently eight different tax regimes governing pensions, depending on the type of pension and when the individual member joined. This complexity has arisen as the tax system has developed over time to reflect changing and increasingly more diverse demands. Most such developments have been incremental, i.e. allowing people to continue to save using the previous rules until retirement, rather than using the new rules introduced by any change.

The eight tax regimes are:

• four types of approved occupational pensions: pre-1970, post-1970, 1987 regime, and 1989 regime
• two types of approved personal pensions: retirement annuity contracts and personal pensions
• two types of unapproved pensions: funded schemes and un-funded schemes.

In December 2002, the Government published a Green Paper on pensions reform and a supporting consultation document. As a result of the feedback from that consultation, the Government has now published a further consultation paper. The key proposals now are

• abolition of the existing eight tax regimes governing pensions
• introduction of a single, unified set of rules across all types of pension scheme, while maintaining pension rights built up before the reform is implemented
• a single lifetime limit, set initially at £;1.4 million and indexed annually, on the amount of pension saving that can benefit from tax relief, replacing the current annual limits
• an annual limit on inflows of value to an individual's pension fund, initially set at £;200,000
• removal of the rules that prevent people in occupational schemes from mixing work and retirement
• raising the minimum age at which benefits can be drawn from a pension scheme from 50 to 55 years of age by 2010, but with a reduced lifetime limit
• tax free lump sum for retirees set at 25 per cent of the value of an individual's pension fund.

Some of the benefits of these changes will be that

• it will no longer be necessary to leave employment in order to access an employer's occupational pension
• it will no longer be necessary to choose between membership of a personal pension and an occupational pension; anyone will be able to join any type and any number of pension schemes at any time
• all occupational schemes will be able to pay a lump sum of up to 25 per cent of the value of the benefits
• those on more modest earnings who leave their pension saving late will not find that they are restricted in the amount of extra contributions they can make each year.

If, following a further period of consultation to 5 March 2004, the Government decides to proceed with the changes, the legislation will be included in the 2004 Finance Bill and implementation will be from April 2005.

Note that the changes have no direct implications for the way in which pension contributions and pension payments are handled under PAYE.
(Source: www.inlandrevenue.gov.uk/pbr2003/simplifying-pensions.pdf
www.inlandrevenue.gov.uk/pbr2003/responses-pensions.pdf
www.inlandrevenue.gov.uk/pbr2003/pria-pensions.pdf )
...back to 12 December 2003

Stakeholder pensions - "encouraging start"

The take-up of stakeholder pensions during the 2001/02 tax year has been declared an "encouraging start" by the Pensions Minister, Malcolm Wicks. Some 840,000 pensions were sold in the first year, and the latest figures, at the end of June 2003, show that the figure now stands at 1,550,000. Two-thirds of the sales to people in work went to those earnings less than £;20,000 a year, and the majority of those buying pensions were under age 45.
(Source: www.gnn.gov.uk/... )
...back to 12 September 2003

Pensions simplification

In December 2002, the Inland Revenue published a Green Paper on pension reform, entitled Simplicity, security and choice: working and saving for retirement. At the same time, a consultation document, Simplifying the taxation of pensions: increasing choice and flexibility for all, was published jointly by the Treasury and the Inland Revenue. They were followed by a period of consultation, and it was expected that the changes would be introduced from April 2004.

The Revenue has now announced that there will be a further period of consultation in autumn 2003 and the changes to the tax regimes on pensions will be implemented from April 2005, allowing time for pensions providers to make the necessary changes their systems.

There was no indication in the original review documents that the proposals for change will impact on the way in which pension contributions are handled through the payroll for both tax and NICs purposes. The proposals are not intended to rationalise the difference kinds of pension schemes that may be offered, only to rationalise the regimes under which they operate.
(Source: www.inlandrevenue.gov.uk/pensionschemes/aday.htm
and www.gnn.gov.uk/gnn/national.nsf/IR/421... )
...back to 27 June 2003

NICs liabilities on payments into FURBS

Following the decision of the High Court in the case Tullett & Tokyo Forex International Ltd and Others v The Secretary of State for Social Security in 2000, the Inland Revenue argues that the decision against the Secretary of State in that case does not affect the Revenue's view that payments into Funded Unapproved Retirement Benefits Schemes (FURBS) are liable for Class 1 NICs.

The High Court had found that the payment by the employers of short-dated gilts into life insurance policies did not create a liability for Class 1 NICs as the benefit to the employees was an increase in the value of the life insurance policy. As that amounted to a benefit in kind, no Class 1 NICs were due. It had been argued subsequently that the same principle applied to payments into FURBS.

In an article in Tax Bulletin 65, the Revenue distinguishes payments into FURBS from those into insurance policies, arguing that "earnings" for NICs purposes includes payments made to a third party for the benefit of the employee.
(Source: www.inlandrevenue.gov.uk/bulletins/tb65.pdf )
...back to 27 June 2003

Elections to contract-out work

With effect from 12 May 2003, the operational work associated with the registration of contracted-out schemes and the maintenance of existing scheme information will be dealt with by the Inland Revenue Audit and Pension Scheme Services (APSS) in Nottingham.

The transfer of work affects:

• elections to contract-out for new Salary Related, Money Purchase and Mixed Benefit schemes
• applications to contract-out for Appropriate Personal Pension Scheme Certificates
• notification of major and/or minor variations and cessation of Contracted-out Schemes, including Appropriate Personal Pension Schemes
• enquiries relating to live Contracted-out Schemes and Appropriate Personal Pension Schemes.

The APSS, a part of the IR Savings, Pensions, Share Schemes, is already responsible for handling and approving applications for tax approval for all types of pension schemes. The purpose of moving contracting-out work to the Nottingham office is to provide a "one-stop shop" for all aspects of setting up and operating pension schemes.

The address of APSS is:

Elections Section
IR Audit and Pension Scheme Services
PO Box 62
Yorke House
Castle Meadow Road
Nottingham
NG2 1BG.

The telephone number for general enquiries until 22 June 2003 is 0191 225 0150, and from 23 June 2003 it is 0115 974 1444.

NI Services to Pensions Industry (NISPI), part of NICO in Newcastle, continues to be responsible for ensuring that the pension rights of employees contracted-out of S2P via a COSR, COMP, COMB or APP scheme are accurately recorded and maintained. Note, however, that all aspects of Stakeholder pension schemes work are handled by IR Savings, Pensions, Share Schemes in Nottingham.
(Source: www.inlandrevenue.gov.uk/nic/transfer_of_elections.htm )
...back to 9 May 2003

Pensions earnings cap

The ceiling at which employers may make provision under occupational and personal pension schemes increases from £;97,200 to £;99,000 for the 2003/04 tax year. This new figure is subject to confirmation in the Budget on 9 April as the Chancellor is entitled to introduce a different figure.

The cap applies to employees who contribute to a personal pension scheme, or who join an occupational pension scheme set up since 14 March 1989, or who join any occupational pension scheme from 1 June 1989. It also applies to Stakeholder pension schemes.
(Source: The Retirement Benefit Schemes (Indexation of Earnings Cap) Order 2003 - www.inlandrevenue.gov.uk/si/2003-0843.pdf )
...back to 4 April 2003

Pensions Updates

In February 2002, the Revenue announced that, contrary to the published guidance at the time, all stakeholder pension schemes had to be contracted out of SERPS, now S2P. Full guidance on the contracting-out of stakeholder pension schemes has now been published in an updated version of IR76 Personal Pension Schemes Guidance Notes, in chapters 22A and 22B. The Internet version of these Guidance Notes, although still formally dated 2000, has also been extensively updated to reflect statutory changes in other areas, to clarify many other issues, and to update references to COEG to "Inland Revenue NI Services to Pensions Industry", and "SERPS" to "S2P".
(Sources: Pensions Updates 138, 139 and 141 - www.inlandrevenue.gov.uk/pensionschemes/pso138.pdf (and pso139.pdf, and pso141.pdf )
...back to 21 March 2003

State Second Pension

The "low earnings factor", as defined in the accrual provisions of the State Second Pension (S2P), increases from £;10,800 to £;11,200 from 6 April 2003. This reflects, after rounding, a 3.6% increase, equivalent to the year-on-year rise in average earnings at September 2002.

The S2P replaced the State Earnings Related Pension Scheme (SERPS) from 6 April 2002. The change was prompted by the Government's intention to make better pension provisions for lower-paid employees whose earnings do not permit them to make their own arrangements for a second pension, even for a stakeholder pension scheme.

During the year in which it took effect, i.e. the 2002/03 tax year, the S2P was aimed in particular at employees earning between two thresholds. The lower threshold is the "qualifying earnings factor", the same as the annual lower earnings limit, i.e. £;3,900 for 2002/03 and £;4,004 for 2003/04. The higher threshold is called the "low earnings factor", set at £;10,800 for the S2P's first year, and increased to £;11,200 for 2003/04.

Compared with SERPS, the S2P makes considerably improved pension provisions for employees who are not contracted-out of the S2P and whose earnings fall between these two thresholds.

The first improvement is that their earnings, for pension accrual purposes, is deemed to be £;11,200. Therefore, an employee is treated as having earnings £;11,200, even if earnings during 2003/04 were only, say, £;4,100. This means that all 'not contracted-out' employees with earnings between £;4,004 and £;11,200 during 2003/04 will be treated as having "surplus earnings" of £;7,196, the difference between the two thresholds.

The second improvement is that the rate of pension accrual between the two thresholds is 40% of surplus earnings under the S2P, (for employees reaching state retirement age after April 2010), compared with 20% under SERPS. Taking an extreme case, an employee with earnings of £;4,100 during 2003/04 would have accrued £;19.20 under SERPS (i.e. 20% of £;96 surplus earnings) but, under the S2P, the accrual will be £;2,878.40, i.e. 40% of £;7,196 surplus earnings).

Accrual under the S2P during 2003/04 on earnings between £;11,200 and £;25,600 is at 10%, instead of the 20% under SERPS. The higher accrual rate under the S2P is, therefore, of benefit to employees earning over £;11,200 but the benefit reduces gradually as earnings approach £;25,600 until, at that point, accrual under the S2P is the same as it would have been under SERPS.

The S2P accrual rate on earnings between £;25,600 and the upper earnings limit, £;30,940 for 2003/04, is at 20%, the same as under SERPS.
Payroll Briefing 19 - 14 April 2003

Future of pensions

A Green Paper setting out the Government's plans for pensions reform is due before the end of the year. The Government is expected to promote partnership between employers and employees, and to explore ways of cutting red tape and reducing the costs associated with running pension schemes.

Both the TUC and the CBI have made contributions to the debate, taking opposing views. The TUC believes that the way forward is to make it compulsory for employers to contribute 10% of earnings towards pension schemes for their staff, and for employees to match those contributions. A phased approach is proposed, starting at a 4% contribution from each party and rising eventually to 10%.

In contrast, the CBI argues that compulsory contributions will not address the fundamental problems of a slowdown in the equity markets and longer lives after retirement. Instead, the CBI believes that the Government should simplify regulation and provide tax incentives.
Payroll Briefing 11 - 28 November 2002

Pension scheme manuals

The Revenue publishes a number of manuals on the technical aspects of occupational and personal pension schemes. Pension Updates are also published regularly and, early in June, all of the application forms for personal and stakeholder schemes were revised. The address of the Revenue's website dedicated to pensions matters is www.inlandrevenue.gov.uk/pensionschemes/index.htm .

The latest manual to be updated is CA14A Termination of Contracted-out Employment. The manual is intended for employers and administrators with contracted-out money purchase (COMP) schemes and provides guidance on the procedures to follow when an employee leaves a COMP scheme and the period of contracted-out employment falls partly or entirely before or after 6 April 1997. The booklet may be downloaded from www.inlandrevenue.gov.uk/pdfs/nico/ca14a.pdf .
Payroll Briefing 4 - 18 July 2002

Pensions Update

Booklet IR76 Guidance Notes on Personal Pension Schemes contains the main Inland Revenue guidance for the pensions industry. The latest electronic version of the booklet may be obtained from www.inlandrevenue.gov.uk/pensionschemes/guidance.htm#2 . The latest revision incorporates Pensions Update 130 which gives new guidance on the application of the earnings cap, £;97,200 for 2002/03, when a pension scheme member opts to use a "basis year", i.e. a year other than the current year. The new rule states that an individual can nominate a basis year to support higher-level contributions for a later tax year and apply the "cap" applicable to the current tax year.
Payroll Briefing 224 - 23 May 2002

Pension changes

A number of changes to the legislation affecting company and state pensions have been introduced in the past year and more will take effect from April 2002.

1. Stake holder pensions were introduced during 2001 and all employers affected should have been able to offer their staff membership of a scheme by 8 October 2001 at the latest.
2. In preparation for the introduction of stakeholder pensions, the tax relief provisions for personal pension schemes were changed from 6 April 2001 so that all deductions are taken net of basic rate tax and, where the deductions are made through the payroll, they are taken from a scheme member's net pay. Scheme providers reclaim tax on the contributions at the basic rate and add it into each scheme member's fund.
3. The State Earnings Related Pension Scheme (SERPS) will be changed into the State Second Pension (S2P) from 6 April 2002, with the effect that the accrual for employees with annual earnings of up to £;10,800 in a year will be significantly enhanced. (See Payroll Briefing, issue 218 )
4. The way in which age-related rebates are calculated for members of Appropriate (i.e. contracted-out) Personal Pension schemes will change so that, as well as benefiting older scheme members, the payments are also weighted to the benefit of those with annual earnings of up to £;10,800.

Unexpectedly, the Revenue announced in February that, in order to meet the statutory rules for stakeholder pension schemes, all of such schemes must be contracted-out of SERPS or S2P. As a result, those employers that have designated a stakeholder pension scheme where membership is limited to specific employments must immediately apply to contract-out their designated scheme. In the case of stakeholder schemes that are not limited to specific employments, the scheme providers, e.g. financial institutions, must arrange to contract-out their schemes. The implications of these changes must be understood in the context of payroll processing, in particular the calculating of Class 1 NICs.

Before considering the reasons for and the effects of the change, the following notes are offered to clarify the rules for handling the various types of pension schemes by the payroll office.

The payroll rules for deducting pension contributions and calculating NICs depend on whether the pension scheme is an "occupational" scheme, i.e. one where the pension contract is made between the employee and the employer, or a "personal" scheme, i.e. one where the pension contract is made between an individual and a scheme provider, even if the employer contributes to the scheme and/or takes deductions through the payroll. Stakeholder pension schemes are always "personal" pension schemes, never "occupational" pension schemes.

1. When the employer has obtained tax approval from the Inland Revenue Savings, Pensions, Share Schemes (IR SPSS) office, (formerly known as the Pensions Schemes Office), for an occupational pension scheme, employees' contributions are deducted from their gross pay, prior to calculating any tax liability, thereby giving tax relief at each employee's marginal rate of tax. If an employee also makes additional voluntary contributions (AVCs) to the employer's occupational pension schemes, those are also deducted from gross pay.
2. When a scheme provider has obtained tax approval from the IR SPSS office for a personal or stakeholder pension scheme, each scheme member's contributions are collected net of basic rate tax and, if the contributions are deducted from the scheme member's pay in a Group Personal Pension scheme, they are always deducted from net pay - never from gross pay. If an employee also makes AVCs to a scheme other than the employer's occupational pension scheme, i.e. free standing additional voluntary contributions (FSAVCs), that scheme is a personal pension scheme and the contributions are always deducted from net pay.
3. If an employer has chosen to contract-out an occupational pension scheme from the State additional pension (i.e. SERPS or S2P), a contracting-out certificate is issued by the Inland Revenue's Contracting-out Employments Group (COEG) and the employer is given an "employer's contracting-out number" (ECON) and the scheme is given a "scheme contracting-out number" (SCON). As a result, the employer may calculate employee and employer NICs using table letter D (or E, or contracted-out C, if relevant) for a contracted-out salary related (COSR) scheme, or using table letter F (or G, or S, if relevant) for a contracted-out money purchase (COMP) scheme.
4. If a pension scheme provider has chosen to contract-out a personal pension scheme that is generally available for anyone to join, a contracting-out certificate is issued by COEG and the scheme is known as an Appropriate Personal Pension (APP) scheme. The scheme is given an "appropriate scheme number" (ASCN) but, as the contracting-out is not done by an employer, there is no ECON. Scheme members may choose whether or not to contract out through the scheme. If an employer deducts pension contributions for a member of an APP scheme through the payroll, the employer must calculate NICs using table letter A (or B or not-contracted out C, if relevant). Scheme members benefit from contracting-out by a refund of contributions in the form of age-related rebates, with enhanced rebates aimed at lower-paid members from April 2002.
5. Most stakeholder pension schemes are not, at least at the moment, contracted-out. If a scheme provider contracts-out a stakeholder scheme where membership is available to anyone, not just limited to employees of certain employers, it is known as an Appropriate Personal Pension Stakeholder Pension (APPSHP) Scheme. Unlike normal APP schemes, the contracting-out process is handled by IR SPSS, not COEG. However, just as with normal APP schemes, the scheme is given an ASCN and, if the member's contributions are deducted through the payroll, the employer uses table letter A, or equivalent, to calculate NICs. The scheme members benefit from the same age-related rebates as are provided under APP schemes.
6. In the situation where a stakeholder pension scheme is only available to employees of a particular employer, the employer may choose to contract-out a stakeholder scheme as a money-purchase scheme, even though it is a personal pension scheme, not an occupational pension scheme. The scheme is known as a Contracted-out Money Purchase Stakeholder Pension (COMPSHP) scheme. The contracting-out process is also handled by IR SPSS and the employer is issued with an ECON and the scheme is given a SCON. As the employer holds the contracting-out certificate, NICs are calculated using table letter F, or equivalent.

The recent change in the interpretation of the statutory rules for stakeholder schemes was announced in Pensions Update 119, one of a number of regular updates to the Revenue's published guidance on pension schemes. The full rules for stakeholder schemes appear in the IR76(2000) guidance notes.

Regulation 1 of the Welfare Reform and Pensions Act 1999 defines a number of conditions that must be met for a pension scheme to be a stakeholder pension scheme. One condition is that the scheme must be able to accept transfer payments in respect of members' rights under other pension schemes. The ability to transfer rights from one scheme to another without charges to the member's fund is one of the strengths of stakeholder schemes. If a new employee already has pension rights under a contracted-out scheme and wishes to transfer those rights to the new employer's scheme, the new scheme must also be a contracted-out scheme for such a transfer to be possible.

The Revenue has accepted advice to this effect given to it by the Department for Work and Pensions. As a result, all new stakeholder schemes must apply for contracting-out at the time that they apply to IR SPSS for tax approval. Existing schemes that are not already contracted-out must apply immediately for contracting-out, as an APPSHP scheme in the case of schemes where membership is open to anyone, or as a COMPSHP scheme in the case of schemes where membership is limited to employees of a particular employer.

Therefore, contracting-out of stakeholder pension schemes is no longer optional.

1. Employers who have designated a scheme where membership is not restricted to their own employees, i.e. it is offered by the scheme provider to individuals and to employees irrespective of their employment, should discuss this new development with the scheme provider, find out whether the scheme provider has applied for contracting-out, and obtain guidance on how the implications of the change to an APPSHP will be communicated to the scheme members. Even though the scheme will be contracted-out, individual members will be able to choose whether to contract-out through the scheme. If the scheme members are in employment, the employer will calculate NICs using table letter A, or equivalent, whether or not the scheme member is contracted-out.
2. Employers who have designated a scheme where membership is limited to their own employees must themselves apply immediately to IR SPSS for contracting-out as a COMPSHP. This is done on form SHP102COMP, a copy of which is included in the Stakeholder Application Pack. A pack may be ordered from the IR SPSS stationery orderline on 0115 974 1670 or downloaded from the Inland Revenue website, at www.inlandrevenue.gov.uk . Once the scheme is contracted-out, all of the employees in the scheme will be contracted-out and NICs will be calculated using table letter F, or equivalent. Employers with these schemes should talk to the IR SPSS office and to their scheme providers, in order to plan the communication to employees that will be necessary.

The Revenue's IR76 guidance notes are being revised and a further Pensions Update will be issued when it has been amended.
Payroll Briefing 220 - 28 March 2002

State Second Pension

On 6 April 2002, the State Second Pension (S2P) will replace the State Earnings Related Pension Scheme (SERPS). There will be no obvious effect on payroll departments, other than the changes to contracted-out NICs rates from April 2002. The real effect of the change will be enjoyed by those at whom the changes are particularly directed, i.e. lower paid employees who are unlikely to be able to afford to buy into an additional pension.

The effect of the S2P is to treat all employees who earn between the lower earnings limit (£;3,900 for 2002/03) and a statutory "lower earnings threshold" (LET) as if they had earnings at that level. The LET has now been set at £;10,800 for the 2002/03 tax year. This means that employees who are not contracted-out of S2P and who have earnings between £;3,900 and £;10,800 will accrue additional pension entitlement based on earnings of £;10,800. The accrual will also be at double the rate that would have applied under SERPS. Not contracted-out employees who earn between £;10,800 and £;24,600 will also benefit, but to a lesser extent.
Payroll Briefing 218 - 14 February 2002

Stakeholder pension trees

The Occupational Pensions Regulatory Authority (Opra) has provided a "decision tree" facility on its website to help employers determine whether or not they are obliged to provide access to a stakeholder pension scheme. The address is: www.stakeholder.opra.gov.uk/decisiontree - Payroll Briefing 201 - 9 May 2001

Stakeholder pension guidance

For readers interested in stakeholder pensions, and in some of the more complex areas, a number of publications are now available:

• The DSS has published a number of booklets, including PME1 Stakeholder Pensions, for employers, and PM8 Stakeholder
Pensions, for employees. Contact 08457 313233, or download from the Internet at
http://www.thepensionservice.gov.uk/utility/atoz/atozdetailed/stakeholder.asp.
• The Financial Services Authority (FSA) provide printed advice to help employees choose the right kind of pension scheme (something
employers must never do) in a booklet Stakeholder Pensions and Decision Trees. Telephone 08456 061234, or visit
www.fsa.gov.uk/consumer/whats_new/index.html.
• The Inland Revenue has a basic but comprehensive guide for employees entitled IR78 Personal Pensions, A Guide for Tax, and also
supplies the DSS PME1 Guide mentioned above. Much more detailed information for practitioners is provided in IR76 Personal
Pension Schemes Guidance Notes and CA84 Stakeholder Pension Scheme Manual. The basic guides are available from the
Employer's Orderline (08457 646646), but the others are harder to find. They can be downloaded from
www.inlandrevenue.gov.uk/stakepension/.

In the months leading up to the introduction of stakeholder pensions, they have been invariably described as personal pensions, with deductions taken from employees' net pay and NICs being deducted using table letter A. However, the new CWG2 Employer's Further Guide refers to different types of schemes, e.g. an "Appropriate Personal Pension Stakeholder Pension" (APPSHP), for which table letter A is used, and a "Contracted-out Money Purchase Stakeholder Pension" (COMPSHP), for which table letter F is used. (CWG2 pages 37 and 60)

To clarify the NI position of stakeholder pensions, there are three distinct types of stakeholder pension scheme:

1) A personal pension scheme, where the scheme contract is between the employee and the pension provider. Deductions are taken from net pay. This type of scheme is not contracted-out and table letter A is used to calculate NICs.

2) An Appropriate Personal Pension scheme, where the contract is also between the employee and the pension provider, but the pension provider has contracted-out of SERPS. Again, the deductions are taken from net pay and the table letter for NICs is A.

3) A Contracted-out Money Purchase scheme, where the employer holds the contracting-out certificate. As this is an occupational pension scheme, the deductions are taken from pre-tax pay in order to provide the tax relief, and the NI table letter is either F, G or S. - Payroll Briefing 198 - 29 March 2001