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Stakeholder pensions are low cost pensions that people can take out to boost their income later in life.
Employers who employ 5 or more employees may have to make a stakeholder pension available to their staff from 8th October 2001.
A stakeholder pension is a type of low-charge pension. You can buy a stakeholder pension from a commercial financial services company, such as a bank, insurance company or building society.
Stakeholder pensions must satisfy a number of minimum government standards to ensure that they offer value for money and flexibility. These standards include:
A stakeholder pensions scheme cannot charge more than 1% a year on the value of each member's funds. Members must be able to transfer into or out of a stakeholder pension, or stop paying for a time, without facing any extra charge.
All stakeholder pensions schemes must accept contributions of £20 or more, though some may accept lower payments.
Stakeholder pension schemes must be run in the interest of their members, and will either have trustees or they will be run by a scheme manager.
How do Stakeholder Pensions work?
The Government has set the minimum standards that stakeholder pension schemes have to meet. These cover charges, the benefits schemes have to offer, who can join the scheme and how much they can pay.
Stakeholder pension schemes cannot charge more than 1% of the funds under management a year.
Stakeholder pension schemes MUST, by law, provide the following:
a pension on retirement
a minimum contribution of not more than £20
free transfers between schemes
retirement at any age between 50 and 75
up to 25% of your fund as a tax-free lump sum on retirement
The final pension will be based on the amount paid into the scheme, the investment returns and annuity rates at the time of retirement. Unlike many occupational pension schemes, it will not be based on earnings at or near retirement.
These benefits will be on top of any state pensions stakeholder pension scheme members may be entitled to.
Who pays?
The minimum contribution must, by law, not be more than £20. But this will not give anybody a very big pension, so people will need to save more than this if they want a decent pension when they retire.
Employers are not required to contribute to a stakeholder pension scheme. However, unions will wish to encourage employers to do so. An employer contribution will encourage more people to join the scheme and will help ensure that people can retire on a decent pension. People will be more committed to staying with, and joining, the employer if there is a good pension scheme.
Who are Stakeholder Pensions for?
Stakeholder pensions are mainly for people who cannot join a pension scheme where they work. This might be for a number of reasons. For example, their employer may not run a pension scheme or they may not qualify for scheme membership, perhaps because they are too young to join the company scheme or because they work on a temporary contract.
Generally speaking, people who belong to an occupational pension scheme should stay in it. Occupational pension schemes are the best way to provide for retirement for most people - employers contribute to these schemes and they mainly give a pension related to earnings. Anyone who has the opportunity to join an occupational pension scheme should be encouraged to do so.
But most people who belong to an occupational pension scheme and earn less than £30,000 a year can use a stakeholder pension scheme to top-up their pension benefits. Find out how.
People who do not work and self-employed workers can also join a stakeholder pension scheme and receive tax relief on their payments.
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