Running a pension scheme

Regulations for setting up a pension scheme

You aren't required by law to set up an occupational scheme, but if you have five or more employees and don't offer access to an occupational scheme you may have to offer access to a stakeholder pension so that your employees can make personal provision for a pension if they wish.

As of 6 April 2005, the annual management charge on stakeholder schemes increased to 1.5 per cent for the first 10 years of the contract. In addition, it is now a requirement to offer a "lifestyle" fund option on stakeholder schemes. This type of fund is designed to reduce the volatility of returns in the years leading up to retirement.

You can select a stakeholder pension scheme from the pensions regulator's register of stakeholder pension providers (formerly the Occupational Pensions Regulatory Authority's register).

Find out whether you need to provide a stakeholder scheme on the pensions regulator website.

For most occupational schemes, the pension administrator - often an employee of the pension provider or a trustee who manages the scheme - needs to register the scheme (and any future changes) with the Registrar of Pension Schemes, PO Box 1NN, Newcastle upon Tyne NE99 1NN. Stakeholder pension schemes must be registered with the Pensions Regulator - the provider will usually do this.

HM Revenue & Customs-approved pension schemes enjoy favourable tax treatment such as:

• tax relief on contributions
• members can take part of the benefits as a tax-free lump sum
• a scheme can be contracted out of the State Second Pension (formerly SERPS) in return for a reduction in and/or rebate of National Insurance contributions

Individuals and schemes are currently subject to a number of tax regulations, limiting how much can be put in and taken out of pension schemes. This is to be replaced with a much simpler set of limits from April 2006.

Regulation and legislation of schemes
The pensions regulator regulates work-based pension schemes. It can impose financial penalties and suspend, prohibit and remove trustees for failing to comply with the law.

All occupational pension schemes must appoint a qualified scheme auditor, whose job is to check the existence and value of the assets of the scheme. Salary-related schemes must also appoint a qualified scheme actuary, whose job is to assess the extent to which the scheme's assets will meet its liabilities in future years.

Advisers must report certain breaches of pension law to the pensions regulator, who may provide education and/or assistance to the trustees, appoint an additional trustee or wind up the scheme.

Contributions to occupational pension schemes must be kept in a separate account from the business account. Other scheme assets should also be separated from business assets.

Pensions Act 2004
The Pensions Act 2004 makes a number of changes to the way that company pension schemes are set up and run, including the appointment and training of trustees.

In particular, it establishes the Pension Protection Fund (PPF). Run by an independent board, the PPF has been designed to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover PPF levels of compensation.

In order to have sufficient funds to pay compensation, the PPF will be funded by compulsory annual levies on defined benefit schemes and by taking over the remaining assets of any insolvent company’s scheme that enters the PPF.

The Pensions Act also obliges employers to continue payments to employees’ pension funds during paid paternity or adoption leave, just as they do during paid maternity leave.

Download guidance on the new Pensions Act from the pensions regulator website (PDF).

Subjects covered in this guide

• Introduction
• Regulations for setting up a pension scheme
• Pension trustees' role and responsibilities
• Running a pension scheme effectively
• Changes to a pension scheme
• Winding up a pension scheme
• Checklist for employers and pension scheme trustees
• Buying or selling businesses with pension schemes

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