Stakeholder pensions

What is a stakeholder pension?

Stakeholder pensions are a type of personal pension that offer a secure and flexible way to save for your retirement in a cost-effective way.  They are available to almost everybody, including people in employment, fixed contract workers, the self-employed and people who are not actually working but can afford to make contributions.  It is also possible to contribute to someone else’s stakeholder pension – for example, a non-working partner, your children or grandchildren.

This type of pension works like most other personal pensions – you pay money into your pension to build your pension fund.  However, unlike others, the minimum payments are low – currently £20 and you can stop and re-start payments whenever you want. 

The managers of the stakeholder pension scheme invest the pension fund on your behalf and the value of your pension fund will be based on how much you have contributed and how well the fund’s investments have performed.  You should get investment advice as the fund choices should be considered alongside your investment portfolio.

When you retire, you use the fund you have built-up to buy an annuity from a life insurance company of your choice to provide an income for life.  The other usual income choices are also available.  

Will a stakeholder pension suit me?

If you are unsure if this type of pension is right for you, seek pension advice from an independent financial adviser before making a decision.  They will also be able to help you decide which particular personal pension will best meet your needs.  You may need additional tax help or tax advice which they should also be able to help you with.

What are the pros and cons of a stakeholder pension?

Pros

• It is very important that you save for your retirement as part of your financial plan
• A pension is the most obvious, although not necessarily the best way for you to save because of the tax benefits you can get
• It’s a ‘standard arrangement’ that’s managed for you and relatively easy to see how it’s doing
• If anything goes wrong you are more likely to receive some compensation
• Pension fund is free of capital gains tax
• Invested savings can have dramatic benefits from compound interest
• If you die with the plan in place the benefits can be passed on to your beneficiaries free from inheritance tax

Cons

• Your money is locked away until you retire.  This might also be seen as an advantage – it’s beyond temptation
• If you buy an annuity when you retire and if interest rates are low, this can work against you
• You may need to look for an inflation proof annuity when you retire.  This will cost you more

Any questions about stakeholder pensions?

If you are a millionaire or a small business owner, this is an important area of financial advice for you to consider fully and a financial planner will be able to help you.  If you have any questions, please call us on 01582 839280 or Email us.