NILGOSC
Stakeholder Pensions
Circular 9/2000
To all Employing Authorities Our Ref: CIRC 9/2000
31 October 2000
1. Introduction
1.1 The Finance Act 2000 will allow employees
who are members of an occupational pension scheme like NILGOSC and whose annual
earnings do not exceed £30,000* (see definition below) to pay up to £3,600 in
concurrent contributions into a new type of defined contribution personal
pension or a stakeholder pension scheme.
1.2 This circular explains the timetable and what the position is for employers and members of the NILGOSC Scheme.
2.1 The timetable for stakeholder pensions is as follows:
·
By
8 July 2001 employers require to have assessed whether they have relevant
employees and whether they have to provide access to a stakeholder arrangement
for their employees
3.1 Since 1 August 2000 the
NILGOSC Scheme does not contain restrictions on access to the Scheme. All employees are either automatically
admitted to the scheme or have a right to join. Employees who choose not to join or who have opted out of the
Scheme are not relevant employees. Therefore
employers participating in the NILGOSC Scheme will not have to provide access
to a stakeholder arrangement.
3.2 The exceptions could be any employing authorities whose admission agreement to the NILGOSC Scheme does not cover all their employees.
3.3 It is estimated that nearly 90% of employees will have annual earnings below £30,000* (see definition below) and therefore these employees will be able to contribute up to £3,600 a year to a stakeholder pension while remaining in the NILGOSC Scheme. The total contributions of £3,600 will not count towards the 15% contribution limit that applies to employee contributions to an occupational pension scheme and any AVC or free standing AVC schemes. Also the benefits from the stakeholder pension scheme will not count towards Inland Revenue benefit limits.
3.4 Up to 25% of a member’s stakeholder pension fund (excluding any protected rights from contracting out) can be taken at retirement in the form of a tax free lump sum.
3.5 Stakeholder pensions, therefore, are likely to be an attractive alternative to an AVC for those below the £30,000 earnings limit.
3.6 Those earning over £30,000 will have no choice but to purchase added years or contribute to an AVC or FSAVC if they wish to increase their pension benefits.
3.7 An employee may however pay into a stakeholder pension on behalf of other people e.g. a spouse, children or grandchildren.
3.8 The DSS has confirmed that there will be no requirement on employers who offer all their employees membership of an occupational scheme, such as NILOGSC, to facilitate a stakeholder arrangement for concurrent membership. Anyone who is eligible to make concurrent contributions and who wishes to do so would have to make his or her own arrangements i.e. in the same way as they would to pay a FSAVC.
4.1 The issue for local government, however, is whether, despite there being no legal obligation to offer a concurrent stakeholder arrangement, it wishes to do so for the benefit of its staff. This would involve choosing a stakeholder provider, providing relevant literature to members, collecting and remitting the concurrent stakeholder contributions to the chosen provider, etc.
4.2 There would seem little point in each employer contributing to the Scheme going through the process of choosing a stakeholder provider. It would clearly be more practicable if an amendment was made to the Local Government Pension Scheme regulations to allow the Committee to put in place a concurrent stakeholder arrangement for all Scheme members.
4.3 The Officers Advisory Group of the Local Government Pensions Committee (formerly the United Kingdom Steering Committee) is currently considering whether to request the Department of the Environment, Transport and the Regions to amend the English Local Government Pension Scheme to allow concurrent stakeholder arrangements as an alternative to AVCs and added years.
4.4 As soon as a decision is made in England it is likely that the Northern Ireland Scheme will follow its decision.
5. Conclusion
5.1 Therefore the position at present is that neither NILGOSC nor employing authorities will require to set up a stakeholder arrangement.
5.2 Individual employers may wish to provide a stakeholder arrangement as an alternative to AVCs and added years and it may be that the Committee will be given powers to set up a stakeholder arrangement.
5.3 Once further information is available I shall contact you again.
Yours sincerely
* Note: Employees can pay into a stakeholder pension scheme if in at least one of the five tax years preceding the year in which the contributions are made, their earnings did not exceed £30,000 (but not counting any tax year prior to 2000/2001). If an employee has not been employed by the employer for the whole tax year, it will be necessary to gross up earnings for the year. The £30,000 for 2000/2001 may be varied in future years by Treasury Order. It is likely that the taxable earnings shown on the annual P60 will be used as the remuneration to determine the £30,000 limit.