Pension Planning - Stakeholder Pensions

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Stakeholder Pensions

Since April 2001 major changes have been introduced relating to stakeholder schemes and personal pensions. If you do belong to an occupational scheme Should you be unable to join an occupational pension scheme, stakeholder schemes and personal pensions are useful as a major way of saving for retirement.

Nonetheless, even if you have joined an occupational pension scheme, there are some circumstances in which you might also take out a personal pension or stakeholder scheme:

• To contract out of part of the state pension scheme. If your occupational scheme is not contracted-out of SERPS, you can use a personal pension or a stakeholder scheme to contract out.
• To top up your occupational money purchase scheme
• Where you have earnings from another source that are not covered by your occupational scheme, such as, earnings for freelance work or from a second job.

Stakeholder schemes and personal pensions are types of defined contribution scheme. Your pension depends on the factors described below. You can use stakeholder schemes and personal plans to provide other benefits too, such as, a widow or widower's pension and increases to pension once they start to be paid. However, this generally reduces the standard amount of pension you will get.

Defined contribution schemes

All defined contribution schemes work in the same way. They are like savings schemes, providing you with your own pot of money. The pension you get depends on: the amount paid into the scheme; how well the invested payments grow; how much is deducted in charges; and the amount of pension you can buy with your fund when you reach retirement. Generally, this depends on `annuity rates' at the time you start your pension.