By Kira Nickerson Last minute issuance of further guidance and amendments to stakeholder pension ...
By Kira Nickerson
Last minute issuance of further guidance and amendments to stakeholder pension regulations last week has lead to further confusion on issues such as employer access and exit penalties, according to Steve Bee, pensions director at Scottish Life.
The Government's low cost pension launches this week following two years of build-up involving a green paper, white paper, several draft regulations and amendments of many different pieces of legislation, involving the Treasury, DSS and the Inland Revenue.
Despite the primary legislation being laid before parliament last spring and the regulations being issued early this year, with only a week to go the Government has issued further amendments.
On 15 March, changes were made affecting employer access to stakeholder while on 23 March the Pension Scheme Office issued updates, one of which retracts the Government's earlier decision to require 16 and 17 year olds to obtain a parental signature on a stakeholder application.
Opra, which had just launched a service enabling employers to decide if they need to offer access to a stakeholder pension, is having to revamp its site to make adjustments included in the latest regulations.
The site was to allow employers to complete a series of 'yes' or 'no' questions, so as to ascertain whether or not they are exempt from having to offer access to a stakeholder pension.
The last minute changes to employer access rules issued by the Government on 15 March, should also make the guide to stakeholder pension booklet handed out to employers last October, useless, Bee said.
The amendments have made alterations as to who is considered a relevant employee and to which employers must offer access to a stakeholder pension. Bee said while the legislation never mentions who exactly is a relevant employee, it does contain a number of exclusions. He said: "The question of relevance or otherwise is tricky. There is nothing in the legislation that says 'this is what a relevant employee looks like' or explains what relevance means. Rather, the legislation is framed in the negative, telling how to spot employees who are not relevant.
"There are a number of definitions of non-relevance and having exhausted all of those, any employees left over will be the relevant ones." (see flow chart far right).
One of the main changes in the amendments is to clarify the position of opt outs. In the past there has been consultation on the relevance of employees who were offered membership in a qualifying company GPP but refused to join.
It was decided that these employees do not have to be offered a stakeholder. However, until now the Government has never clarified as to whether a member of the GPP scheme who has subsequently opted out is considered relevant or not, Bee said. The 15 March amendments now make it clear that opt outs will be considered to be non-relevant, he said.
The issue of relevancy aside, the presence of an existing GPP arrangement can still cause further complications for the employer, Bee said.
Employers, and their advisers, will need to be able to determine whether the company's existing GPP meets the criteria to be classified as an acceptable alternative to stakeholder access thereby allowing the employer to claim exemption, he said.
According to Bee's flow chart for employers, to qualify the GPP must be available to all relevant employees aged 18 and over and must permit employees to contribute via payroll deduction if they so wish, employers must make a contribution of at least 3% of basic payroll.
The 3% contribution requirement by employers has recently been amended to clarify that while employers can make it a requirement for employees to match the contribution, they cannot be made to pay more than a matching contribution.
Bee said: "For existing GPP members prior to 8 October 2001, the employer need not insist on matching, or any at all, employee contributions for qualification purposes but if the employer does insist employee contributions are made, the GPP can still qualify if certain conditions are met. For employees joining a service on or after 8 October 2001, the employer may insist that employees pay up to 3% of basic pay. It is not permissible for the employer to insist that employees pay more than 3%."
If an employer's GPP does not meet any one of these requirements, then it is not exempt from providing a stakeholder pension option and all current members of its GPP are considered relevant in the eyes of the regulators, Bee said. They must then be offered a stakeholder option even though they are active members of an existing pension plan.
Qualifying GPP arrangements must also not make any specific charges on members who transfer to another pension arrangement. Bee said: "What this means in practice is that transferring members should not be treated differently to paid-up members. It does not mean normal charges that would be deductible anyway on becoming a paid-up member, such as the cancelling of initial units, or the application of an MVA on a with-profits fund."
Bee said this is another area of the regulations in which he questions the Government's wording and one that has not yet been resolved, with a week to go to the launch date.
While exit penalties are not allowed, there is no definition as to what constitutes an exit penalty, he said, noting that members transferring from a pension plan in which they have paid heavy front-end loaded charges would not be considered to have suffered any exit penalties for their early exit from the plan.
Other issues Bee said product providers were waiting for included the handling of with-profits funds as investment options. Whether these funds are acceptable investment choices is still undecided but a number of groups are offering them as the default option of their stakeholder pension.
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