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Guide to Personal Pensions

Stakeholder pensions?

Stakeholder pensions were introduced in April 2001.

They had two main aims: the first was to encourage more people to save by relaxing the rules that had prevented some people, including non-working women and children, from saving for their retirement.

The second aim was to encourage companies to set them up for their workers and, in theory, contribute into them.

The basic rules on stakeholder schemes are:

• An annual investment of £3,600 a year, irrespective of earnings or your age
• Savings can be higher than that if you are in work, subject to an “annual allowance”
• Contributions can be a minimum of £20 a month
• Total flexibility: you can increase and decrease contributions or transfer a pension from one provider to another, all without penalty
• A maximum annual charge of 1.5%
• As with personal pensions, 25% of the lump sum can be taken from the pot at retirement

Flexibility on stakeholder pensions also applies to earnings, and even to those who are contributors into them:

• Contributions of more than £3,600 a year can be made if you have enough earnings

• You may continue to make contributions at that level for the next five years, even if you are no longer working or have lower earnings. This can be useful for women who give up work for a period to look after children

• Pensions can be set up in the name of a child, or a non-working spouse, even a pensioner under the age of 75. In both theory and practice, parents can set up stakeholder pensions for their newborn children to enjoy in 55 years’ time, the earliest retirement age for those with personal pensions after 2010.

• Contributions into a stakeholder pension can come from any legal source: inheritance, investment income, state benefits, student loans, and even lottery winnings

In these cases, tax relief is available at 20% in the 2008-2009 tax year: this means the actual amount that is contributed to make up the £3,600 annual maximum (for non-earners) is £2,880.

• The self-employed can contribute into a stakeholder based on their annual earnings. This means they can pay in more than the £3,600 minimum

• You can take out a stakeholder pension if you are in an occupational scheme.

For more information on stakeholder pensions, check out the HM Customs & Revenue website, here.


More pages

Page 1: Introduction
Page 2: Stakeholder pensions?

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