What is a stakeholder pension?

A stakeholder pension is a type of defined contribution pension, which has a retirement value based on the amount you pay in and how your investments perform over time. They’re arranged by a contract between an individual and their pension provider, and must adhere to strict government conditions. Anyone can invest in a stakeholder pension whether they are in permanent work, self-employed or unemployed.

How stakeholder pensions work

Stakeholder pensions are specially designed to be accessible to everyone and provide a flexible way for savers to build a retirement income. 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. In addition to you and your employer, other individuals, such as a spouse or partner, can also contribute to your stakeholder pension and you can contribute to theirs.

  • Group stakeholder pensions

A group stakeholder pension is sometimes offered by an employer and refers to a group of stakeholder pension schemes. Since 1 October 2012, group stakeholder pension schemes have largely been replaced by Auto-Enrolment.

If you joined an employer’s group stakeholder pension scheme before Auto-Enrolment was introduced and are still contributing it, your employer is obliged to process your payments until you stop paying into the scheme or leave your job.

Stakeholder pension charges

Stakeholder pensions must meet minimum requirements set by the government which include the amount of fees that can be charged and the level of contributions that have to be paid in.

  • Capped charges

Annual management fees are capped at 1.5% a year for the first 10 years and 1% a year thereafter. Any UK pension that you transfer into a stakeholder pension has to be accepted without any additional charges.

  • Low level minimum contributions

Stakeholder pension plans must have a minimum gross contribution of £20 or less, whether contributions are made regularly or as one-offs. They also have to offer flexibility, and you can stop or restart them at any time without incurring a penalty.

  • Default investment fund

If you don’t want to choose how your pension is invested there must be a default fund available for you to invest in. This should have a lifestyling option, which automatically moves your money to lower risk investments as you approach retirement.

Moving a stakeholder scheme

If you change jobs or stop working you can choose to keep paying into your stakeholder pension and future employers may be able to contribute, depending on the rules of the workplace pension scheme they offer. You can also take a break from contributing to your pension at any time and can leave your savings to keep growing until you reach retirement.

Accessing your stakeholder pension

Like all defined contribution pensions, you’re able to withdraw the funds in your stakeholder pension from the age of 55. You can take up to 25% as a tax-free lump sum and either withdraw the remaining 75%, use it to purchase an annuity, keep it invested via drawdown or delay drawing it altogether.

Risk warning

The information in this article should not be regarded as financial advice.

Last edited: 30-09-2018

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