Stakeholder pensions

Stakeholder pensions are a type of private pension. They are low-charge and meant for people who do not have access to an occupational pension or a good-value pension to save for their retirement.

Whether a stakeholder pension is the best choice for you will depend on your particular circumstances. You might want to consider a stakeholder pension if you are a moderate earner.

You use your own money to build your pension fund. Your stakeholder pension scheme manager or trustees will put your contributions into investments for you, such as stocks and shares. When you are older or retire, you use your fund to buy a pension from a pension scheme provider. This is known as a money-purchase benefit scheme.

By law, stakeholder pensions must meet a number of minimum standards to make sure they offer you value for money, flexibility and security. The stakeholder pension standards include the following.

• Stakeholder pension providers can only charge you a maximum of 1% of the value of your pension fund each year to manage your fund. The charges are taken from your fund.
• As well as the 1%, the law allows stakeholder pension providers to recover costs and charges they have to pay for certain other things. For example, when they have to pay any stamp duty or other charges for buying and selling investments for your fund, or for particular circumstances such as the costs of sharing a pension when a couple divorce. These expenses are found in other pension schemes, not just stakeholder pensions.
• Any extra services and charges not provided for by law must be optional. Extra services include advice on choosing a pension or life assurance cover. You must have agreed to these extra charges as a separate arrangement, and the charges must be clearly defined for the services you are being offered.
• If you choose to transfer into or out of a stakeholder pension, or you stop paying your contributions for a time, the stakeholder pension provider will not charge you extra.
• All stakeholder pension schemes will accept contributions of as little as £20, which you can pay each week, each month or at less regular intervals.
• Stakeholder pensions must be run by trustees or by an authorised stakeholder manager, whose responsibility will be to make sure that the scheme meets the various legal requirements.

You need to decide whether a stakeholder pension is best for you, and this will depend on your current circumstances and your plans for the future. If you join a stakeholder pension scheme, the pension provider must give you regular information. This includes an annual statement to let you know how much you have paid, and how your fund is progressing.

The Pensions Advisory Service (OPAS) can give you further information about stakeholder pensions. See the directory for details. You can also get more information about stakeholder pensions from Stakeholder pensions – Your guide (PM8). See the directory for details about how you can get a copy of this guide.