A stakeholder pension plan is a defined contribution arrangement that will provide an income in retirement.
The policyholder contributes to the fund and the money is invested to build it up and the pension payable on retirement is dependent on the amount of money paid into the scheme, the performance of the fund and the annuity rate at the point of retirement.
Stakeholder pension schemes are subject to a minimum set of requirements laid down by the government to help those wishing to invest modestly into their pension. These are:
- Contributions of anything from £20 and above must be accepted.
- There must be no penalties for transferring to another scheme or stopping contributions.
- There can only be a charge of 1.5% per annum for the first 10 years and 1% per annum thereafter.
As with a personal pension plan, policyholders can retire after the age of 55 and are usually able to take up to 25% of the value of the fund as a tax-free amount (dependent on any restrictions the individual pension plan may have). The rest of the fund can be used to purchase an annuity.
The flexibility for the policyholder to increase/decrease contributions, take a break for a while or switching funds make stakeholder pensions a useful option. You can of course transfer it to a new employer’s scheme at no charge.
Please note that as of 1st October 2012, a new employer does not have to offer you access to a stakeholder pension scheme. However, if your employer arranged your stakeholder pension scheme before this date, they must continue to take contributions from your salary until you stop contributions.