Stakeholder pensions are personal pensions. They must meet government standards to make sure there is flexibility and to 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.
Flexibility
- 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
Security
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 depending on 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 aretaxed.
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:
More useful links
FAQs
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.
How do I get money out of my stakeholder pension? ›
You can access the funds in your stakeholder pension from the age of 55, or from when you retire. With a stakeholder pension you can either withdraw: Up to 25% as a tax-free lump sum. The entire value of your pension pot – but remember you will be taxed on anything over the initial 25%.
What is the difference between a workplace pension and a stakeholder pension? ›
The main difference between arranging a personal or stakeholder pension yourself and joining one through your workplace is the amount of control you have over how the money you pay into your fund is invested. With a workplace scheme, the investment choices may be made for you by the provider.
How do you ensure a good pension? ›
Ways to make your pension savings give you more
- Increase your savings.
- Make sure you claim all your tax relief.
- Review the way your pension pot is invested.
- Review the charges deducted from your savings.
- Consider bringing pension pots together.
A pension can supplement your retirement income, but it likely won't be enough to pay for all of your expenses. This means you'll probably want or need to supplement your pension with contributions to an IRA. A 401(k) could give you more money in retirement.
Is a stakeholder pension better than a personal pension? ›
Stakeholder pensions are a type of personal pension which have to meet certain conditions. They can be a good choice for people who need a more flexible option because they allow you to vary the amount you pay and when you make payments.
What are the disadvantages of a stakeholder pension? ›
Cons. Higher fees – although when first introduced stakeholder pensions had lower fees, they haven't moved on with the pension market and now modern pension funds charge 0.5%. The difference can be huge, depending on your pension fund. Using our simple pension calculator can demonstrate the impact this can have.
Why choose a stakeholder pension? ›
They can be particularly useful if you're on a low income or are self-employed and may not meet the conditions of other pension schemes. If you're working, your employer may choose to contribute to your stakeholder pension, however they're not obliged to and it's possible to set up a stakeholder pension for yourself.
What is the maximum stakeholder pension charge? ›
A stakeholder pension differs to other personal pensions as contributions are more flexible. There are also guidelines for stakeholder pensions, which include: Capped charges – management fees are capped at 1.5% for the first ten years and then 1% thereafter.
Is a pension better than a 401k? ›
There are pros and cons to both plans, but pensions are generally considered better than 401(k)s because they guarantee an income for life. A 401(k) can be more aggressively managed by the individual, which could create more growth than is likely from a pension fund.
A stakeholder pension may have lower annual charges. These are limited to 1.5 per cent of pot size for the first 10 years, and 1 per cent after that. A stakeholder pension may allow a lower minimum contribution – as little as £20 a month. A stakeholder pension might invest in a narrower range of funds.
Can I transfer my stakeholder pension? ›
Yes, there's nothing to stop you transferring a stakeholder pension into a SIPP if you want the additional investment choice and flexibility. Similarly, if you decide a SIPP is not right for you, you can transfer it into a stakeholder pension. It is easy to transfer.
What is considered a good pension income? ›
Retirees should aim for an annual income that replaces 70% to 80% of their average earnings from ages 45 to 64. Social Security will currently replace about 40% of the average earner's pre-retirement income.
Can I retire at 60 with 300k? ›
£300k in a pension isn't a huge amount to retire on at the fairly young age of 60, but it's possible for certain lifestyles depending on how your pension fund performs while you're retired and how much you need to live on.
How many years is a pension good for? ›
Pension payments are made for the rest of your life, no matter how long you live. Lump-sum payments allow you to immediately spend or invest your pension as you like. People who take a lump sum may outlive the payment, while traditional pension payments continue until death.
What is the maximum charge on a stakeholder pension? ›
With a Stakeholder Pension Plan, charges are low and you only need to pay a maximum charge of 1% of the value of the funds you're invested in each year. This means it could cost you less than you might think to save for the future.
What are the disadvantages of a pension plan? ›
In contrast, a pension plan also comes with a few disadvantages:
- No control: Unlike with some other retirement plans, with a pension you don't have any control or access to your money until you retire. ...
- Risk of bankruptcy: You do run some risk if the company that holds your pension goes bankrupt.
