OneClickBenefits
FREQUENTLY ASKED QUESTIONS
What is a stakeholder pension?
Every company with more than 5 employees will have to implement a stakeholder
pension scheme or a compliant alternative by October 2001 or could face
a fine of up to £50,000.
Stakeholder pension schemes were introduced to shift the burden of pension
provision from the state to individuals. They are primarily aimed at those
earning less than £20,000 and the self-employed.
As well as being available to employees through their company, individuals
can source and set up their own arrangements.
Employees within occupational pension schemes can also contribute to
stakeholder pension schemes so long as they do not earn over £30,000 and
are not controlling directors.
Stakeholder pensions are money purchase schemes. In a money purchase
scheme the pension is based on the total payments into the fund, how well
those payments have been invested and the cost of buying an annuity (an
agreement to pay a certain level of pension for life). The annual cost
of a stakeholder pension should not exceed 1% of the fund value.
At present employers are not required to contribute to their employees'
stakeholder pension schemes nor is it compulsory for employees to join
a scheme. It is understood that the Government will review this situation
within three years of the introduction of stakeholder pensions.
At retirement the member uses the accumulated fund to purchase an annuity.
What is a group personal pension plan?
Personal pension plans are individual policies into which you and your
employees can contribute and also operate on a money purchase basis. This
means that when an employee leaves, you no longer have any administration
or other commitments.
When companies set these up, they are called group personal pension plans.
The company normally decides the contribution it wishes to make for each
member, this is normally a percentage of employees earnings. The company
may pay the same contribution rate for all members, or it may vary them
according to, for example: age, status, length of service or level of
the employee's contribution.
At retirement the member can choose to purchase an annuity or draw an
income directly from the fund until age 75 when they must purchase an
annuity.
What is the difference between
a stakeholder pension and a group personal pension?
The main differences are:
- Access to stakeholder pensions will not be restricted to the employed.
It will even be possible for parents to pay into a stakeholder pension
on behalf of their children. Group personal pensions on the other hand
are restricted to just those in employment.
| The maximum that can be contributed into an employee's stakeholder
and group personal pension plan is dependent on an individual's
age. Age at beginning of tax year |
Percentage of net relevant earnings |
Maximum contribution 2001 -2002 |
| Below 36 |
17.5 |
£16,695 |
| 36-45 |
20 |
£19,080 |
| 46-50 |
25 |
£23,850 |
| 51-55 |
30 |
£28,620 |
| 56-60 |
35 |
£33,390 |
| 61-74 |
40 |
£38,160 |
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The current earnings cap for pensions is |
£95,400 |
- The annual cost of a stakeholder pension should not exceed 1% of the
fund value. The annual cost of a Group Pension Scheme may be more than
1% of the fund value.
Which is better for our company, a group
personal pension plan, or a stakeholder plan?
This depends on personal circumstances. However, if you are paying in
more than 3% you should probably choose a Group Personal Pension as this
may provide you with greater fund choice. We would recommend that for
personal advice you speak with one of our Independent Financial Advisers
from Thomson's Benefit Consultants.
How can I set up a stakeholder / pension
/ benefit scheme?
Firstly have you decided whether you are going to contribute to your
employees pension plan? We can provide you with information on what is
typically offered within your sector, geographical location and by companies
of your size.
Are you intending to contribute to your employees pension?
- Yes
- If you are intending to contribute over 3% the advice of our Independent
Financial Adviser Thomson's Group is to set up a group personal
pension plan.
- No
- We offer two stakeholder only options. The first is for companies
who just wish to meet their stakeholder requirements. The second
is for companies who do not want to contribute at the moment but
still want the scheme properly promoted with a positive message
sent out to employees.
- Undecided
- Many employers see stakeholder as being a great opportunity to
motivate, recruit and reward employees. To help you choose the appropriate
contribution, we have designed a benefit calculator. This provides
you with guidance as to what level of contribution you should be
considering based upon what companies in your sector and location
offer. We recommend you meet with one of our Independent Financial
Advisers who will help you decide what is appropriate for your company.
What are the tax implications of pension
schemes?
Employer - pension payments made by an employer on behalf of their
employees are treated as a deductible business expense and are not liable
for National Insurance.
Employee - tax relief is applied to any contributions paid by
an individual into their own fund, up to the Inland Revenue limits shown
below.
Maximum contributions are based on maximum net relevant earnings.
So if a basic rate tax payer wants to pay £100 into his pension, he will
get tax relief so in fact it will only cost him £78. If a higher tax payer
contributes £100 into his pension he will get tax relief at 40% so it
will only cost him £60.
Within the members fund, the money invested grows free of virtually all
tax, so it grows much faster.
When the member gets to his chosen retirement age, he can take up to
25% of his fund as a tax free lump sum. The remaining money is used to
provide him with an income which is subject to income tax.
What are the tax implications of the
other employee benefits?
PRIVATE HEALTHCARE AND CRITICAL ILLNESS COVER
Employer - premiums are normally deductible as a business expense
Employee - premiums are treated as a P11D benefit, in other words
the cost of the premium is added to the individual's taxable income. For
example, if the annual cost for an individual is £500 then, for a basic
rate tax payer, extra tax of £110 would be payable. A higher rate tax
payer would pay £200 extra in tax for the same level of benefit.
INCAPACITY COVER (also known as Permanent Health Insurance)
Employer - if the employer sets up a policy for an employee to
facilitate the continuation of the individual's salary if they become
ill or disabled for a time, then premiums are normally deductible as a
business expense.
Employee - there is no P11D implication. If an individual starts
to claim, then they will be taxed on the income received in the normal
way.
LIFE COVER (also known as death in service cover)
Employer - premiums paid by the employer into an approved group
life cover scheme will normally be deductible as a business expense.
Employee - There is no tax due on the premium paid. If a member
should die and a payout made this will normally be paid free of any income
or inheritance tax liability.
This information is provided as a general guide only. If you have any
specific tax queries you should speak to your normal tax adviser.
What is Life Cover?
Life cover is a very simple and inexpensive product. It provides a lump
sum (based on salary) at the date of death to the nominated dependants
of your employees should they die in your employment. It also prevents
you from feeling any obligation to pay a lump sum to the dependents.
What is Incapacity cover?
Incapacity cover provides your employees with an income if they become
unable to work due to long-term illness or disability leave. Not only
is this a very valuable benefit for employees, it also prevents you from
taking the difficult decision of whether to continue to pay employees
if they are absent due to long term illness.
What is Critical Illness Cover?
Critical Illness cover provides your employees with a lump sum if they
are diagnosed with a specified illness or injury. During recent years
many companies have chosen this benefit over incapacity cover as the employee
does not need to remain on the payroll to receive the benefit or go through
lengthy claims procedures.
What is Private Healthcare?
Private Healthcare ensures your employees are treated quickly and can
plan when they are going to be away from work. This helps both you and
them.
Who are the benefit providers?
Through OneClickBenefits, you have access to the very best providers
chosen by our Independent Financial Advisers, Thomson's Benefit Consultants.
Providers were chosen based on their:
- Financial strength
- Investment performance (pension only)
- IT capabilities
- Service Standards
- Commitment
- Charges
- Products
The providers include:
- Friends Provident
- Scottish Equitable
- Scottish Life
- Swiss Life
- WPA
If for any reason the providers above do not match your needs we will
work with you to select your provider.
How can I buy my benefits?
We try to provide you with as much choice as possible. You can choose
to purchase your benefits online on your own, we can guide you over the
phone or one of our Independent Financial Advisers from Thomson's Benefit
Consultants will come and help you.
Also to help you make your decision we offer you different methods of
buying, you can use the sector comparison tool which provides you with
details of what is typically offered in your industry sector, location
and by companies of a similar size to yours. Alternatively if you know
what you are looking to spend as a percentage of payroll, we have a range
of benefit packages to suit all budgets.
If you already know the benefits you want, go straight to our tailor
made section where you can just input the benefits you want.
How do I set up my benefits?
Setting up your benefits is very easy. Once you have decided what you
want, we will send you an employer pack with information on how your benefits
are run and pre-presentation communication. Your employees with be provided
access to their member portal so they can find out what they will get.
From the autumn they will even be able to set up their pension schemes
totally online with no paper involved at all.
If you have chosen a group personal pension plan (and perhaps even a
stakeholder scheme), a professional presenter will visit your office and
communicate your new benefit package. The presenter will bring with him
bespoke packs including application forms for your employees to complete.
How do I run my benefits on an ongoing
basis?
Running your benefits is easy. You have access to a secure online administration
area; this includes all the details you need on how to run your scheme
and details on the benefits provided.
When employees join and leave your company or their details change, you
can update their details on the system. Once a month, we will send you
an email reminding you to access your administration area to make sure
you have made all the necessary changes. 48 hours later we update the
system with the amount of money you owe each provider.
What happens if I have poor internet
access?
You don't have to deal with us just over the internet. You can deal with
us via email, fax or through the call centre. Our system is designed to
be simple and cost effective no matter how you want to deal with us.
What happens if my internet connection
fails?
You always have a backup, if your internet connection fails, you can
either email us, fax us or call us.
What happens if I have existing benefits?
We may be able to save both you and your employees time and money.
- For your employees, pensions available now generally have much lower
charges than those set up before this year.
- You could save time and effort by using our simple administration
platform to run your benefits.
Our advice is that you meet with one of our Independent Financial Advisers
who can best advise you on your options.
How secure is the site?
We have used the most secure system available, using 128 bit encryption
and Verisign. Only the people you want to have access to our site have
access. If we need to send you confidential or sensitive information we
send it to the secure message site and send the relevant person within
your company an email informing them they have a secure message.
Who are the independent financial advisers?
Thomson's Benefits Consultants are responsible for any advice you are
given whether online or by one of their Independent Financial Advisers.
They were founded in 1969 and have 21 offices nationwide.
How do I know that I am going to get
long term quality service?
Historically it has been difficult to know the quality of the service
you can expect to get. Now that has changed, we incentivise our sales
people on your satisfaction. We randomly survey our clients to check that
you are happy with the service you are receiving.
Not that you should ever have need to be unhappy, we hope that by providing
you with easy administration, procedures and call centre support, your
benefits will run themselves, cost effectively.
How do I arrange a meeting with an
Independent Financial Adviser?
Contact our call centre on 020 8663 4586 and they will arrange the appointment
for you.
What is definition of earnings?
You can choose on what basis to reward your employees, the most often
definition used is basic salary.
What does 'salary sacrifice' mean?
Many employers we talk to want to pay contributions into their employees’
pension arrangements; however, we understand that for some companies this
may not be possible at the moment.
Although it is likely that the Government in the next few years will
introduce compulsory employer pension contributions, you are not under
any compulsion to do so today.
You now know that you have to set up a stakeholder plan by October 8th
this year and if you are not initially going to make contributions into
your employees’ pensions, then we can help you communicate a really
positive message which gives your employees a clear financial benefit
by setting up their stakeholder pension through your company.
So what is salary sacrifice
all about?
Put simply, your employees can elect to give up part of their salary,
which reduces the amount they earn by the same amount.
As the employer you pay, on an entirely discretionary basis, the same
amount of money into their pension scheme as an employer contribution.
In addition, you can choose to add on the 11.9% employers National Insurance
that you will save on their reduced salary. For example, if a basic rate
taxpayer gave up £1000 of their salary and you paid this same amount
into their pension fund along with the NI you saved on their reduced salary,
they would have £119 more invested than if they paid the money into
the fund themselves.
The position for you is totally neutral, you pay no more than would have
done, and your employee benefits in a very positive way.
We will need to go through the process with you very carefully to ensure
you fully understand it but the advantages are clear and give your staff
a strong message that you are fully supporting the stakeholder initiative.
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