Updated 03 September 2020
A stakeholder pension is a type of personal pension. It’s a defined contribution pension, which means you pay money into a pot over time, and this money is invested in a range of assets such as stocks and shares. The idea is that these assets will increase in value over time, and that this growth (along with your regular contributions) will boost the size of your pot over time. You can then access this pot in a range of ways from the age of 55 onwards.
The terminology around personal pensions can be puzzling at first. There are three kinds of personal pensions, called stakeholder pensions, SIPPs, and just ‘personal pensions’. For clarity, we’ll call this third group ‘standard personal pensions’.
Stakeholder pensions are pretty similar to standard personal pensions, though there are a few key differences:
A stakeholder pension is very different from a self-invested personal pension (SIPP). Specifically:
Despite these differences, a stakeholder pension works broadly in the same way as any other defined contribution pension scheme. Stakeholder pension rules are the same as other personal pensions, in terms of how much you can contribute per year and in your lifetime, and how you will eventually access your pot.
If you need to, you can usually take a 'contribution holiday' from your stakeholder pension, temporarily suspending your pension contributions. This may be useful if your income fluctuates (e.g. if you are self-employed).
Group stakeholder pensions used to be a common kind of workplace pension scheme, and some people still have them. If you are a member of a group stakeholder pension you can carry on contributing to it until you leave that employer.
Anyone can open and contribute to a stakeholder pension, whether you are employed, self-employed or unemployed. You can have a stakeholder pension pot as well as a workplace pension - indeed, it doesn't matter how many different pensions you have, provided you don't exceed your allowances (how much you can pay into them). Sometimes, your workplace pension might take the form of a stakeholder pension, or you could ask your employer to pay their contributions into your existing stakeholder pension.
You can access a stakeholder pension at any age from 55 onwards. However, it’s sensible to leave it as late as possible, since your pension needs to last you for the rest of your retirement. Remember too that once you’ve started to access your stakeholder pension, you can no longer pay as much into it (your annual allowance will drop from £40,000 to just £4,000). Therefore if you are still earning, it’s prudent to avoid accessing your pension until you have retired (or very shortly before).
You have several options for accessing your stakeholder pension. These include:
You can even take your whole pension pot as a lump sum. However, this is not recommended. You will face a much bigger tax bill by doing this, and unless you intend to spend all your pension in a single year, you are generally better off leaving it invested in your pension fund. If you do plan to spend it all in a single year, you then need to consider the question of what other income you can live on for the rest of your retirement.
Talk to a financial adviser about setting up, managing or accessing a stakeholder pension.
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