Stakeholder Pensions

TAX RULES

There are rules around how much tax relief someone can get on their contributions to a pension scheme. The rules apply to everyone, no matter what type of scheme they are in or when they joined the scheme.

Employers receive tax relief for their contributions on the same basis as all their other business expenditure.

Individuals can obtain tax relief on their contributions of up to 100% of their UK earnings. Therefore, employers who operate ‘net pay’ through the payroll on employee pension contributions do not need to worry about complex contribution rules.

There is no limit on the amount of pension saving an individual can build up in a registered pension scheme. There are only two key controls – a Lifetime Allowance and an Annual Allowance.

The annual allowance is £245,000 for the year 2009/10. If the increase in the value of an individual’s pension rights or their contributions, (plus any contributions from the employer) exceeds the annual allowance there is a tax charge on the individual at 40% on the excess.

There is also a lifetime allowance (LTA), which is £1.75 million for the year 2009/10. When an individual takes their benefits, if their total pension savings exceed this, they will be taxed on any amount over £1.75 million. This ‘Lifetime Allowance charge’ is set at 25% if the additional savings are taken as a pension, and 55% if taken as a lump sum.

Tax relief is available for individuals on contributions of up to 100% of UK taxable earning (including bonuses, overtime, benefits etc).

PENSION TYPES

Stakeholder (Personal) Employee

Employees pay Income Tax on their earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 the employee pay into their pension, they end up with £100 in their pension pot. If they pay tax at higher rate, they can claim the difference through their tax return or by telephoning or writing to HM Revenue & Customs (HMRC).

Stakeholder (Personal) Employer

Stakeholder pensions are low cost pensions that people can take out to boost their income later in life. Employers will be affected by the new legislation. Employers may have to make a stakeholder pension available to their staff from 8 October 2001.

If you employ five or more employees you may have to make a stakeholder pension scheme available to your staff. However some employers will be exempt.

Which employees cannot join the Stakeholder Pension Scheme

1)     those who have been in continuous employment with you for less than three consecutive  months

2)     those who are already members of your existing pension scheme, and those who could have joined but declined

3)     those who cannot join your existing scheme because they are under 18 or within five years of the scheme's normal pensionable age

4)     those who earned less than the National Insurance lower earnings limit for one or more weeks within the last three months 

5)     those who cannot join because of HM Revenue & Customs (HMRC) restrictions - for example, the employee does not normally live in the UK

What should the Employer do?

1)     select a scheme from the Pension Regulator's list of registered stakeholder providers

2)     discuss the proposed choice with your employees 

3)     formally choose a scheme for your workers

4)     give contact details to your workforce

5)     allow the designated provider access to your employees at your workplace

6)     make payroll deductions for employees who want to pay into the scheme, and keep a record of them

7)     forward contributions to the stakeholder provider

Read more about stakeholder pensions at the HMRC website http://www.hmrc.gov.uk/stakepension/index.htm

Setting up a Stakeholder Pension on Bright Pay

To access this utility click “Employer”

1)    Click Add Pension Scheme
        Enter the Name of the policy, (the company that is providing your Stakeholder pension, enter the reference
        number provide by your pension company.

2)    Choose Type of Pension
        From the dropdown, select Stakeholder pension as your pension type.

3)    Enter Contact information
        Click the Contact and Payment tab. Enter the Contact information of your Stakeholder pension provider.

4)    Enter Payment information
        Chose from the dropdown how you will be paying over the pensions to your Stakeholder provider.
        If you are paying by credit transfer enter your Pension Companies account details in the box provided.
        You will be able to create a BACS files to send to your bank to automatically transfer the pension fund.

Click Save

Applying the Pension Scheme to your Employees

To apply a pension to your employee Go to Payroll > Double click Employee

ENTER A PENSION DEDUCTION BY AMOUNT
 

1)    Under Deductions click Add icon

2)    Select Pensions as the deduction.

3)    From the Drop down, select the Stakeholder Pension scheme type which has been previously set up.

4)    Enter amount for employee's contribution in the box provided

5)    Enter amount for employer's contribution in the box provided

6)    The total amount entered will be deducted from the employees weekly, fortnightly or monthly gross pay as appropriate.

ENTER A PERCENTAGE PENSION:

1)    Under Deductions click Add icon

2)    Select Pensions as the deduction.

3)    From the Drop down, select the Stakeholder Pension scheme type which has been previously set up.

4)    Enter amount for employee's contribution in the box provided

5)    Enter amount for employer's contribution in the box provided

6)    The total amount entered will be deducted from the employees weekly, fortnightly or monthly gross pay as appropriate.

7)    To apply a percentage basis click the drop down (beside the amount) and select %

8)    Enter the % amount in the Box provided.

Pay Stakeholder Pension to your Pension Provider

To access this utility (once payroll has been finalised) go to Payroll > Pay Pensions

1)    This report will show the breakdown of the Pension payments to be paid to your pension company.

2)    To print this report click Print

3)    To export the Pensions report click Export (the report can be copied to excel, CSV, XPS or copied to clipboard.)

4)    You can select to print or view the Pensions report for all, some on one employee, select which employees you want to run the report for on the right hand side.

Create a BACS File/ Bank Payment File

A Bank payment file can be created to send to your bank by clicking the Create BACS File button.