Stakeholder pensions - technical summary

- No allowance for any bid/offer spread or member charge.

- Any charge for advice must be included in the 1% p.a. or be charged separately.

*For stakeholder plans set up from 6.4.05 the annual management charge must be no more than 1.5% per annum for the first 10 years.  After 10 years this must be reduced to 1% p.a. This change does not affect plans set up before 6 April 2005.

- Does not apply to tax relief or rebates received in respect of contracting-out.

- Provider may prohibit payment by cash, credit or debit card to all stakeholder pension schemes.

- A contribution can be refused if acceptance would prejudice scheme's tax status.

There is no minimum frequency of contributions.

- A default investment option must be available to members.

- A statement of investment principles must be produced.

- An annual return of not less than 2% below base rate net of fees and charges must be made for any funds held on deposit. This required return excludes funds held temporarily on deposit which are used for asset dealing within the scheme.

- With-profits investment allowed if costs are clear and fund ring-fenced.

From 6.4.05 a lifestyle arrangement for the default investment choice must be introduced for new customers and for new investments from existing customers. Also, for existing customers who did not initially make an investment choice, the option to switch to lifestyling must be given.

An annual declaration

The Trustees or manager must sign a declaration confirming that stakeholder regulations are being complied with.

Annual benefit statement

Each member must receive an annual statement. This must include the value of fund, amount of contributions paid in and date paid, amount of any investment gain or loss and charges deducted.

No additional charge for a transfer in, and no exit penalty for a transfer out.

By 8 October 2001 an employer should have had a designated stakeholder scheme for all relevant employees. A relevant employee is defined as any employee not excluded by way of the prescribed exemptions shown below.

- Includes name and address of designated scheme.

- Allow representatives for the designated scheme 'reasonable access' for promotion.

- Must be remitted to provider by 19th of the month following due date of contribution.

- Employer can delay request by an employee to vary contributions by up to 6 months from the previous instruction.

- Provider must advise Pensions Regulator if the payment of contributions is late if this is likely to be of material significance to the Pensions Regulator.

- Record of payments must be kept by employer.

- It is not a requirement that an employee must join any designated stakeholder scheme, only that a scheme must be available.

- If an employer fails to offer access he may be liable to a fine of up to £50,000.

Where an employee is taken on and this results in 5 employees the employer has 3 months to comply. This includes all employees including directors, but not self employed people.

- Employees must be able to join the occupational pension scheme within 12 months of starting work.

- The occupational pension scheme can still be closed to employees under 18, or those within 5 years of retirement.

- No access requirement for employees who have declined to join the occupational pension scheme in the past or had joined and opted out.

- Employer can insist that employee contributes 3% of basic pay as well. If employee refuses, employer is exempt from access requirement. However employer could then offer to contribute less than 3% (with or without employee contribution) and still be exempt.

- Personal pensions set up before 8 October 2001 where an employee is required to contribute more than 3% can qualify for an exemption from the access requirements where there is a matching or higher employer contribution. This does not apply to new entrants after 8 October 2001 who can only be required to pay a maximum of 3%.

- Access must be available to all relevant employees except those under the age of 18.

- Personal pensions must have no exit penalties except for those that would have been applied if no transfer had been requested, contributions had continued or any market adjustments where the investment is with-profits.

Employees are not relevant if:

- They have not worked for the employer for more than 3 months in a row.

- They fall within the access exemptions for an occupational pension scheme of the employer.

- Their earnings have not reached the lower earnings limit for 1 or more weeks in the last 3 months.

Employer only required to deduct and pass on contributions in respect of a designated scheme. Bankers' Automated Clearing System (BACS) can be used.

Responsible for the registering of stakeholder schemes and regulating their compliance with the requirements of registration.

Regulate marketing and promotion of schemes, including occupational and personal pension schemes designated as meeting the stakeholder standards. Authorise Stakeholder Managers.