UK Stakeholder Pension Guide
This is a form of personal pension except there are no initial up front charges. The Stakeholder Pension provider cannot charge more than 1% of the value of the individuals fund each year for administering the pension.
Up front charges were the cause of great controversy, when people realised that in many cases their entire first two years contributions were eaten up to pay for "front-end loaded" charges - often in the form of commissions to sales advisers.
For some people a stakeholder pension may be a better option than other personal pensions. Stakeholder pensions offer greater flexibility than other personal pensions, for example, you can stop paying into the scheme without having to pay a penalty and restart whenever you wish. You may also be able to vary the timing and amount of your payments to the scheme.
Stakeholder pensions are available from personal pension providers, for example, insurance companies, banks and building societies. Other organisations, for example, trade unions and the Post Office may also offer stakeholder pension schemes to their members. If you are employed, you may be able to get a stakeholder pension through your employer. You can also choose to join a different stakeholder pension scheme to the one offered by your employer.
As an employee you will not be able to join a stakeholder pension scheme offered by your employer if you:-
- Have worked for your employer for less than three months
- Are a member of the employer’s occupational pension scheme
- Cannot join the employer’s occupational pension scheme because the scheme’s rules will not admit you as someone who is under 18 or is within five years of the scheme’s normal pension retirement age; or could have joined the employer’s occupational pension scheme but did not do so.
- Have had earnings which are below the lower earnings limit for at least three consecutive months. This is the level of earnings above which an employee has to pay national insurance contributions.
- Cannot join a stakeholder pension scheme due to Inland Revenue restrictions, for example, you do not normally live in the UK.
An employer must offer a stakeholder pension scheme to their employees, unless the employer:-
- Has fewer than five employees; or
- Offers an occupational pension scheme, which all their employees can join within one year of starting work; or
- Offers access to a personal pension scheme which is available to all employees who are aged 18 and over who should have access to a stakeholder pension scheme. The employer must contribute an amount equal to at least 3% of the employee’s basic pay into the pension scheme and the scheme must not have penalties for leaving it. The employer must also deduct the employee’s contributions from their pay if asked to do so; or
- Offers an occupational scheme for some employees and a personal pension scheme for the remainder.
Maximum Amount
Most individuals can pay £2,808 per year into a plan and the Government will automatically add the grossed up equivalent of the basic rate of tax - £792 on a £2,808 investment - making a total investment for the year of £3,600.
If you would like a Stakeholder Pension Expert to contact you, without obligation, please complete the short form here.
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