Stakeholder pensions are personal pensions. They must meet government standards to ensure flexibility and limit annual management charges. The minimum payments are low. You can stop and re-start payments whenever you wish.
How stakeholder pensions work
A stakeholder pension is a money purchase pension provided by a bank, building society or insurance company. Trade unions may also offer stakeholder pensions to their members. You pay money to your pension to build your pension fund.
The pension provider invests the pension fund on your behalf. The value of your pension fund will be based on how much you have contributed and how well the fund's investments have performed.
It is best to make regular contribution payments if you can. But you can stop payments for a while if you need to without it costing you anything. However, that will mean you have a smaller pension fund unless you make extra payments later.
When you reach the age when the stakeholder pension can be paid, you can use the fund you have built up to buy an annuity. This is a regular income, payable for life, which you can buy from a life insurance company.
When you can take your stakeholder pension
The earliest age you can take a stakeholder pension is usually 55, depending on your arrangements with the pension provider. You don't need to be retired from work to get your stakeholder pension benefits.
How stakeholder pensions differ from other personal pensions
By law stakeholder pensions must meet government standards to make sure they offer value for money, flexibility and security. The standards include:
Limit on annual management charges
Managers can charge fees of up to one and a half per cent of your pension fund each year for the first 10 years and after that, up to one per cent.
- you can switch to a different pension provider without penalty charges
- you can start contributions from £20 a month, and pay weekly, monthly or lump sums when you want
- you can stop, re-start or change your contributions without penalty charges
The pension must be run by independent trustees or auditors who are responsible for the pension meeting the legal requirements.
Is a stakeholder pension suitable for you
A stakeholder pension could be suitable for you if:
- you are self-employed and don't have a workplace pension
- you aren't working but can afford to pay for a pension
- you want to save money for retirement on top of your workplace pension
- your employer offers it as a workplace pension
Contribution levels and tax relief
You can save as much as you like in different pensions, including stakeholder pensions. You get tax relief on contributions of up to 100 per cent of your earnings each year. This is subject to an 'annual allowance'.
For example, if you pay tax at 20 per cent, for every £80 you pay into your pension, you get £100 in your pension pot. If you pay tax at the 40 per cent or 50 per cent rate you can claim the extra tax back. Savings above the annual allowance are subject to tax.
If you don't pay tax, you can still get tax relief on your (or someone else's) contributions up to a certain limit.
Find out more about the current annual allowance for tax relief at the link below: