Pru warns stakeholder pensions doomed to be empty shells

Many stakeholder pension schemes may end up as empty shells, not used by employers or their staff, pension providers warned yesterday.

The prediction came as a survey showed that up to half of the 350,000 employers required to set up a stakeholder pension, had not done so by the deadline of midnight on Sunday.

Research by Prudential and Marks & Spencer Financial Services suggests that of those companies which designate stakeholder pensions, a large number will do little to promote it. This could put off staff from participating in the low-cost pensions.

Alan Rensch, technical manager of M&S Financial Services, said: "It may well end that there are a significant number of hollow schemes because 73 per cent of employers have said they have no intention of contributing to their employees' pensions, yet two-thirds of employees have said they are more likely to contribute if their employer is prepared to put money in as well."

Research by Prudential supported this view, showing that four in 10 people who work for firms that are obliged to make stakeholders available to staff, have not yet heard anything from their bosses on the subject.

Companies with five or more employees that fails to establish a stakeholder can face fines of £50,000. But Mr Rensch called the fines "shallow" and said the Government should have used tax breaks, not fines, as incentives to establish the schemes.

Stakeholder providers say the Occupational Pensions Regulatory Authority is ineffective as employees will not complain about employers.