Stakeholder Pensions
A Stakeholder pension is a relatively low cost personal pension aimed at encouraging those who do not currently have pension provision to save for their retirement. They became available on 6th April 2001 and are not a form of State Pension.
To reach as wide an audience as possible, stakeholder schemes are intended to be flexible and easy to understand. Whilst employers with 5 or more employees have had an obligation to provide their employees with access to a stakeholder pension scheme since 8th October 2001, it is not currently compulsory to save for retirement with a stakeholder or any other savings related product.
Stakeholder pensions are privately run and funded but operate within a 'standards' framework laid down by the Government.
You can look at stakeholder pensions as a personal pension with limits on charges and investment options, similar to CAT standards that have been introduced for some ISAs and mortgages. CAT marks assure the charge limits and terms applied are, as far as 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 1.5% per annum of the pension fund value for the first ten years.
Stakeholder plans are individual arrangements which you can take with you if you change jobs. You can even carry on contributing to them when you're not working because legislation allows you to contribute up to a maximum of £3,600 pa into a stakeholder or personal pension plan, with no evidence of earnings and no minimum age. Furthermore anyone under the age of 75 can contribute to a stakeholder plan.
Stakeholder Pensions for your children or grandchildren?
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 and 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.