Stakeholder pensions

A Stakeholder pension is a low cost personal pension aimed at encouraging those people who do not currently have pension provision to save for their retirement. They became available from 6th April 2001 and are not a form of state pension.

To reach as wider audience as possible, stakeholder schemes are intended to be flexible and easy to understand.

While employers with 5 or more employees had an obligation to provide their employees with access to a stakeholder pension scheme since 8th October 2001, saving for retirement with a stakeholder or any other savings related product is not compulsory.

Stakeholder pensions are privately run and funded but operate within a standards framework laid down by Government.

You can look at stakeholder pensions as a  personal pension with limits on charges, similar to CAT standards that have been introduced for some ISAs and mortgages. CAT marks assure the charge limits and terms applied are, the government considers, acceptable and fair. In the case of Stakeholder pensions this means that the complex series of charges and penalties previously found in personal pensions are replaced with a single transparent charging rule...

A single annual management charge of not more than 1% of the pension fund value!

And that’s not all, stakeholder plans are individual arrangements which means you can take them with you if you change jobs. You can even carry on contributing into them when your not working, because in another change to pension rules. the government now allows you to contribute up to a maximum of £3,600 pa into a stakeholder or personal pension plan! No evidence of earnings, no minimum age. Furthermore, uniquely amongst pension plans, anyone under the age of seventy five can contribute to a stakeholder plan.

Who’s to stop you starting a stakeholder pension for your children?

An important repercussion of the ‘no penalties’ rule is that you don’t have to delay starting a plan until you find the right provider. You can start a plan straight away. If the provider doesn’t perform as well as you expect, you can simply take your fund and transfer it to another provider. No penalty!

Another big plus for stakeholder pensions is the fact that providers must allow a minimum investment of no more than £20. This provides much needed flexibility compared to personal pensions, for instance you could make one payment of £20, if money is then suddenly tight, you can stop payments until such a time as you can afford them again, whenever that may be. No penalty!