How many will retire on less than the minimum wage?
17 May 2012
Stakeholder pensions
Stakeholder pensions are a type of personal pension and work in a similar way to other money purchase pensions.
They are available to anyone under the age of 75 and can be bought from insurance firms, banks and investment organisations. Some retailers also offer them.
When you pay money into a pension, the managers of the stakeholder pension scheme invest the pension fund on your behalf.
The amount payable when you come to retire depends on the amount of money you've paid into the scheme, how well the investment funds have performed and the annuity rate at the date of retirement.
When you come to retire, you can take a 25% tax-free cash lump sum and use the remainder of the fund to buy an annuity.
Stakeholder pensions differ from personal pensions because they must meet a number of minimum standards to ensure they offer good value for money, flexibility and security.
For a start, annual management charges are capped at 1.5% a year for the first ten years and 1% after that.
You can also switch to a different provider without your current provider charging you and you can start contributions from as little as £20 – this can be paid weekly, monthly or at less regular intervals. And you won't be charged any penalty fees for stopping, restarting or changing your contributions whenever you want.
The scheme must also be run by trustees or by an authorised stakeholder manager to make sure the scheme meets legal requirements.
Tax relief
Tax relief on stakeholder pensions is the same as for other money purchase pensions. So you get tax relief on contributions of up to 100% of your earnings each year – up to the annual allowance which is currently £50,000.
Is a stakeholder pension right for me?
Stakeholder pensions can be a good idea if:
- You're self-employed
- You're not working but can afford to pay a pension
- Your employer doesn't offer a company pension scheme
- You don't pay into a company pension
- You're on a moderate income and would like to top up the money you would get from a company pension.
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