What are Stakeholder Pensions?

Stakeholder Pension schemes are low cost personal pension schemes introduced by the Government in April 2001 and designed to encourage more people to save for retirement.

In light of the complex charging structures within pensions at that time, a low cost alternative was introduced to simplify charges and allow individuals to invest for their retirement without worrying about excessive charges. Stakeholder pensions currently have one charge which is capped at 1.5% for the first 10 years and 1% thereafter.

A stakeholder plan allows you the flexibility to stop, start or change your contributions, transfer funds in or transfer to an alternative provider at any time without penalty*.

Stakeholder pensions have one type of charge, known as the Annual Management Charge (AMC). This charge is currently capped at 1.5% for the first 10 years (1% thereafter), making them a cost effective way to save for your retirement.

How much can I pay into a stakeholder pension?

To encourage investment into pensions the government has recently increased the annual allowances that investors can make into pensions.

You can now invest up to the same level of your earned income within the tax year into personal, company and stakeholder pensions (total payments) or ?3,600 gross per annum, whichever the greater, and gain tax relief on your contributions (Capped at ?215,000 in 2005/2006 tax year). You can also contribute in excess of these limits, however, you will not receive tax relief on these contributions in excess of these limits.

What do stakeholder pensions invest my money into?

Your stakeholder pension scheme will put your contributions into investments such as stocks and shares, property or cash and fixed interest for you, you can typically decide from a range of investment funds, otherwise your investments will be invested into a default fund on your behalf.

Retirement options

It is important to note that a stakeholder pension is primarily a way to saving until retirement between 50-75 (55-75 from 2010). A company providing the best pension returns in saving for retirement may not necessarily be the best pension provider in providing an income at retirement.

At retirement up to 25% of the pension fund value can be taken as tax-free cash and the balance used to provide an income. Benefits from your pension can be taken in many ways and you can choose what is best to suit your circumstances. (See our retirement section)

Freedom to shop around for the best income in retirement

All stakeholder pensions provide you with an open market option to allow you to shop around for the best income at retirement.

* if you are invested in a 'with profits' fund there may be a market value adjustment.