SMALL businesses have been warned that the deadline is looming for the introduction of new-style pensions introduced by the Government, writes Michael Proudfoot.

Employers with five or more employees are legally obliged to offer them access to Stakeholder Pension by October 8, 2001.

The only exemptions are employers who already have an occupational pension scheme or a group personal pension to which the employer contributes at least three per cent.

The Occupational Pensions Regulatory Authority (OPRA) will police the operation and availability of such schemes with significant penalties for non-compliance.

Also from April 6, 2001 a new integrated tax regime applies to stakeholder and personal pension schemes.

Michael Proudfoot, Kendal-based partner at chartered accountants Lonsdale & Partners, answers some of the burning questions about the new pensions in his latest article for Business Gazette.

Check our question and answer session below of some of the main implications.

Q: I am self-employed and have paid Personal Pension premiums for some years.

How does the new tax regime affect my position?

A: From April 6, 2001, you pay all your premiums net of 22 per cent basic rate tax rather than gross as before.

You will still be eligible for higher rate relief given as before.

The maximum contributions you can pay in any given tax year will be the higher of: £3,600 (gross); a percentage (dependent upon your age) of your profits (capped at £95,400 in 2001/02).

Q: I have heard that people with no earnings (eg children or non-working spouses) can pay contributions under the new regime.

Is this true?

A: People with no earnings can pay up to £3,600 (gross) per tax year into a Stakeholder Pension.

Contributions will be paid net of 22 per cent basic tax rate so that a maximum of £2,808 (ie £3,600 net of 22 per cent tax) can be paid to the pension provider with the Inland Revenue paying £792 even where the contributor does no pay tax.

Tip: consider setting up Stakeholder Pensions for children and non-working spouses.

Q: I have heard that my ability to "carry forward unused relief" is lost under the new regime.

Is this true?

A: Under the old Personal Pension regime, if the maximum possible contribution was not paid in any given tax year, the unused relief could be carried forward for up to six years and used in later years as a valuable way to catch up on pension payments.

This facility has now been removed, the effect being that January 31, 2002 is your final deadline for using up that carried forward relief or it will be lost forever.