Stakeholder pensions

Stakeholder pensions are another way that you can save for your retirement.

Stakeholder pension schemes are low-charge pensions, meant for people who would not otherwise have a good range of pension options available to save for their retirement. They were designed with the employment patterns of women in mind. Whether a stakeholder pension is the right choice for you will depend on your particular circumstances. You might want to consider a stakeholder pension if you are a moderate earner. Stakeholder pensions may also interest you if you are a lower earner or you do not have an income of your own but can afford to save for a pension. If you are self- employed, a stakeholder pension could also be the right option for you.

What non-state pension options are there?

By law, stakeholder pensions must meet a number of minimum standards to make sure they offer 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.
• The scheme 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 should compare stakeholder pensions with the other pension options available, so that you can make an informed decision about which option is best for you.

If you have already joined a personal pension scheme, you should ask the pension scheme provider whether it will be easy and cheap for you to transfer to a stakeholder pension (or other pension) if this is better for you.

Some people, for example certain carers, may be better off staying in the State Second Pension. If you are thinking about joining a stakeholder pension, you must be sure that this is the right step for you.

Example of how a stakeholder pension can help you

Caroline works full time and earns £18,000 a year. She wants to start a family in the next few years, and when she has children she expects to take some time out of paid employment. She has joined her employer’s stakeholder pension scheme as she likes the flexibility it gives her. If she can afford to, she will be able to continue paying into the scheme while she has time off. If she wants to stop making payments for a while, she won’t have to pay anything extra to do so, on top of the maximum of 1% yearly charges to manage her fund.

If you want to know more about stakeholder pensions, see Stakeholder pensions – Your guide (PM8). See the directory for details about how you can get a copy of this guide.