The National Association of Pension Funds (NAPF) has sparked confusion across the pensions industry ...
The National Association of Pension Funds (NAPF) has sparked confusion across the pensions industry after publishing information which suggests all occupational and stakeholder pension schemes must be contracted out of SERPS and the new State Second Pension (S2P) or employers will have to designate a new scheme.
According to the NAPF's December newsletter, new information obtained from legal advisers at the Department for Work and Pensions and the Inland Revenue says stakeholder schemes which accept transfers into the scheme must be contracted out of SERPS or the State Second Pension (S2P) which replaces SERPS in April, or they face losing their stakeholder designation.
"Stakeholder pension schemes are obliged by statute to accept transfers in (unless it would threaten the approval of the scheme) and the Government's legal advisers have indicated that to do this, all stakeholder schemes must be contracted out," reports the newsletter.
A spokesman for the NAPF says there will be no immediate consequences for schemes which are contracted in as they will not immediately be removed from the stakeholder register, however, employers will be required to designate a new stakeholder scheme for their employees (which does offer contracting out) within four months of the stakeholder designation being lost.
The Inland Revenue's Savings Pensions and Share Schemes Division plans to issue a Pensions Update covering this issue soon, adds the NAPF in its newsletter.
However, industry sources argue rules governing the contracting-out of SERPS may have been misinterpreted because any scheme obliged to contract out all of its members would financially penalize those members who should be contracted into SERPS and the S2P.
Stewart Ritchie, pensions development director with Scottish Equitable, says the issue is "not whether schemes should be contracted out by law to maintain their accreditation, but whether members have the right to contract out [of SERPS] if they wish to".
Industry figures also point out that changes to the classification of different stakeholder schemes from April 6 means some members of stakeholder or occupational schemes are likely to receive lower rebates than other schemes, simply because the scheme is treated as a whole money purchase scheme rather than looking at the individual members.
Steve Bee, pensions strategy director at Scottish Life, says clarification of this problem also needs rectifying as it seems unfair some employer-based stakeholder members are being penalized more than others.
Under stakeholder rules, some contract or trust-based stakeholder schemes - also known as "Chapter 4" schemes - are treated as Appropriate Personal Pensions (APPs) rather than occupational schemes, and therefore receive SERPS rebates calculated on an individual basis, because the expense of contracting out is assumed to be high.
Yet stakeholder schemes which are treated as occupational schemes are classified as "Chapter 1" schemes, which means they fall under occupational scheme regulations and receive lower SERPS rebates because it is assumed the expenses incurred are lower.
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