Stakeholder pensions get a stake through the heart

The last big idea to reform workplace pensions has been quietly put to rest.

In April 2001, stakeholder pensions were launched, looking remarkably like charge-limited versions of their personal pension predecessors. Six months later, employers with five or more employees were required to offer most of their workforce ‘access’ to an employer ‘designated’ stakeholder pension scheme, unless other suitable pension provision was provided.

There was no automatic entry into a stakeholder scheme, and neither the employer nor the employee was required to contribute. The net result was that stakeholder pension schemes, as a means of promoting workplace pensions, often failed. Many of the designated schemes were empty shells, devoid of members, existing only to comply with the law.

The failure of stakeholder pensions explains much about the shape of the new auto-enrolment system, which started life at the beginning of last month. It covers more employees – there is no minimum number per employer – enrolment is automatic and, most importantly, so too are employer and employee contributions. The employee’s right to opt out means that the new regime is not compulsory, although the fact that some individual employees have taken no action has prompted some experts to label it as quasi-compulsory.

With the advent of auto enrolment, the Government has scrapped the stakeholder employer access rules, although employers will still have to administer the collection of pension contributions from the pay of existing employee members.  Ironically, as the phasing in of auto enrolment will not end until February 2018, the result is that for the next few years many small employers will not even have a duty to provide access to a pension scheme for their employees.

 

9th November 2012

 

 

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