Pensions are now to have and to stakeholdGareth Fatchett considers the implications of stakeholder pensions for both solicitors and their clients in the build up to October 2001.Just as there was a last-minute rush to obtain professional indemnity insurance cover from the market at the end of last August, stakeholder pensions will creep up on law firms unless they take action now to prepare themselves.

Planning is the best way to be ready for what will be the most fundamental change in pensions and employment legislation in decades.The Welfare Reform & Pension Act 1999 not only ushered in major changes in relation to the sharing of pensions on divorce, it will completely transform thinking on employee remuneration.

The legislation requires certain employers to provide a stakeholder pension scheme for their employees or access to a designated scheme.

Initially stakeholder pensions were intended to provide a vehicle for saving towards retirement for people on relatively modest incomes who had limited access to occupational pension schemes.

During the passage of the legislation access to stakeholder pensions has become far more widely available.

Stakeholder pension schemes can be launched from April 2001 and employers must set up a scheme or arrange for access to an externally provided scheme for their own employees if they have no existing pension scheme by October 2001 at the latest.

Although in any legislation there are always loopholes and scope to reduce its impact, this particular piece of legislation is well drafted and supported by a raft of secondary legislation.

Solicitors need to prepare themselves now for stakeholder pensions, not only in terms of offering advice to clients but also in respect of their own obligations as employers.Solicitors may well ask how the legislation will effect them directly or their client base.

Law firms should be asking a series of questions: l Do you have five or more employees? (Part-time staff must also be included within thatnumber.) l Do you have an existing pension scheme?l If yes, do you contribute 3% of an employee's gross salary as an employer contribution?l If yes, how soon after joining a firm can an employee join the scheme?For those who have answered 'yes' to the first three questions and three months to the last question in the case of a group personal pension or 12 months in the case of an occupational scheme, then prima facie they are compliant.

Those solicitors who have answered any of the questions in a different way should carefully consider their position.Regulated adviceAdvising clients on pension schemes will constitute in the majority of cases regulated advice.

The advice will be covered for the present by the Financial Services Act 1986.

Solicitors need to be aware that advising on pension schemes may be classed as discrete investment business under the Solicitors' Investment Business Rules.

Advising staff on pensions has pitfalls where a scheme's performance is poor or administrative errors occur.

Also, those solicitors following this route would find themselves in a position where they might need to be authorised to conduct discrete investment business.

If a firm is considering the creation of an occupational pension scheme then it would need to be aware of the obligations that are imposed on pension trustees by the Pensions Act 1995.Cost and administrationA pension scheme is not going to be set up without charge.

A compliant group personal pension scheme will need to offer a minimum 3% employer contribution.

Although that cost is mitigated by the contributions being tax relievable, there is still a cost to be met.

Stakeholder pensions, on the other hand, do not require compulsory employer contributions.

Pension schemes are becoming increasingly more complex.

The setting up and ongoing management of a scheme will require a dedicated back office system.

With requests for valuations, old members, new members and the administration of payroll, careful thought needs to be given to the management time that will be necessary to run a scheme.Perception, consultation and designationStaff already compare salary levels.

In future the 'package approach' means that staff are likely to look at what other benefits are offered to them by their employers.A pension is a must for most people with the erosion of the value of the state system.

A stakeholder pension may be seen as less advantageous to employees than a group personal pension/occupational pension scheme.The amount of contributions is going to be an issue.

The cost of providing contributions equivalent to at least 3% of salary plus salary increases in the future will need to be accommodated.Many employers are likely to decide to offer a stakeholder pension scheme which will allow staff to join and make contributions.

The legislation requires employers to consult prior to the institution of a stakeholder pension scheme.However, the law does not prescribe the consultation process.

Therefore, employers will need to be careful not to give rise to any liabilities in the future which could arise from staff alleging they have been dealt with unfairly.TimescaleApril 2001 is the first date from which a stakeholder pension can operate.

Schemes can be designated now and some employers have already taken a go-early approach.October 2001 marks the end of the period by which employers must be compliant, otherwise they will face the prospect of fines of up to 50,000 which can be imposed by the Occupational Pension Regulatory Authority.There is sense in this as pension scheme advisers will feel a great strain of work with all the consultations and administration necessary as employers and their staff prepare for October 2001.Provider costs and other uses of stakeholderExisting pension schemes will probably be much more expensive than the new stakeholder pensions.

With annual management charges capped at 1%, the employee/employer will get very good value for money.

With this in mind existing schemes will need to look carefully at their present terms.Stakeholder pensions will create a raft of tax planning opportunities for clients.

The fact that no pensionable income is needed to make up to 3,600 annual contributions towards a stakeholder pension creates significant opportunities for solicitors.

For the first time people who would not normally be able to have pensions will be able to do so.

Grandparents may wish to set up stakeholders for grandchildren.

Non-working spouses will be for the first time able to contribute.

Divorcing spouses will for the first time be able to seek contribution into a stakeholder as part of their settlement.The opportunity for law firms is immense as the new regime means that every business client will need to be contacted.

Do not wait until the last minute to offer the advice.

Solicitors can rest assured that other professionals will look to offer the advice as part of a client generation exercise.Solicitor Gareth Fatchett is with specialist financial services lawyers Armstrong Neal Financial and is a member of the Law Society's financial and investment business working party