The Pensions Regulator

Guidance for employersGuidance for employers

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Providing stakeholder pensions

Exemptions

The legislation includes a number of instances where employers are exempt from the requirement to provide access to a stakeholder pension scheme. The exemptions apply:

• to employers with fewer than five employees;
• where an employer offers a personal pension that satisfies certain criteria;

Does offering employees a personal pension exempt employers from having to offer a stakeholder pension?

An employer may be exempt if:

• it is a term of each employee’s contract that the employer will contribute at least 3% of basic pay into a personal pension on the employee’ behalf;
• he/she offers a payroll deduction facility to members of the scheme; and
• the scheme imposes no penalties on employees who transfer out of the scheme or stop making contributions.

Notes:

1. If this information is not in each relevant employee's contract, the exemption can still be claimed provided there is written evidence demonstrating that contributions are being made by the employer as above.
2. Employers’ contributions can be conditional on the employee contributing the same amount.
3. Employers can contribute more than 3% but cannot require an employee to pay more than 3% of basic pay (calculated before tax and National Insurance etc).
4. Basic pay excludes commission, overtime and bonuses.
5. For arrangements in place before 8 October 2001, matching contributions may be allowed at whichever rate has been agreed between employee and employer.

Employees who are not covered

Employers do not need to provide access to a stakeholder pension for:

• employees who are eligible to join the employer's occupational pension scheme within 12 months of starting work, except those aged under 18 or within five years of normal retirement age in the scheme;
• employees who have not worked for the employer for three months or more in a row;
• employees who have continuously earned below the lower earnings limit for the last three months;
• employees who are prevented by Inland Revenue restrictions from making contributions to a stakeholder pension scheme;

However, employers who are not required by law to provide access to a stakeholder pension may still wish to do so on a voluntary basis.

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