A stakeholder pension is a type of personal pension arrangement. Stakeholder pensions are widely available from investment companies, insurance companies and high street banks. This type of scheme is a ‘defined contribution’ scheme which means the end value is dependent on how much you have saved over the years, and the investment growth on those savings.
Stakeholder pensions have certain features that make them an attractive option. You can pay in as little as £20 a month and you can stop payments if you need to, and start again when you can, without any penalty, although of course this will affect how much you have in your pension pot by the time you retire. You can move from one stakeholder provider to another without being charged. The annual management fees for newly established plans (which are charged on all pension savings) are capped at 1.5 per cent annually for the first 10 years, then 1 per cent a year after that).
As with all defined contribution schemes, the value of the scheme at retirement will depend on how much you have contributed and the investment growth on those contributions. Including this as part of your pension review will help your decide if your current arrangement remains the most suitable pension arrangement available.
Once you reach your retirement age you will be able to use the value of your stakeholder pensions combined with any other pension arrangement you may hold to purchase an annuity which will provide you with a regular income in retirement.
A stakeholder pension may be a good idea for you if you want to build up your retirement fund, but avoid the charges associated with more complex pension schemes such as a Sipp. You might want to set up a stakeholder pension in addition to any workplace scheme your employer provides. An independent financial adviser (IFA) can help to see if a stakeholder pension is right for you, as well as setting it up and talking you through the investment options available to you. Find an IFA.
Questions you might like to ask an IFA…
- How much will the pension provider charge me?
- Which types of fund can I invest my money in?
- How else could I save money for the future?
- Which tax advantages could I benefit from, when I invest in a pension?