Stakeholder Pensions

A stakeholder pension is a savings scheme designed to provide pensions in retirement. It can be either an occupational or personal scheme as long as it meets certain minimum standards laid down by the law.

They work on the money purchase method

They are based on contributions paid to the stakeholder pension provider.  This can be a bank or insurance company or other organisation working in co-operation with these institutions, such as the TUC.

Many companies have set up stakeholder pension schemes. 

Individuals can start a stakeholder pension directly with a provider.

Since October 2001, most employers without an occupational scheme of their own have had to offer employees access to a stakeholder pension scheme and must, if the individual decides to join one, make deductions from their pay into the scheme.

Employers do not, however, have to contribute into the scheme but Usdaw will, wherever possible, encourage them to do so.

Some employers do contribute to stakeholder pensions and have set up their own branded schemes, for example the J Sainsbury Stakeholder Pension Scheme, The Morrisons Group Stakeholder Pension.

A stakeholder pension provides a pension on the same basis as other money purchase schemes, based on the total amount paid into the scheme plus the investment returns, which are then used to buy an annuity that gives a guaranteed pension in retirement.

There are, however, additional benefits and features of a stakeholder pension that mark it out as different from other money purchase pensions.  This is because the Government has set minimum standards which stakeholder pensions have to meet. These are:

• A maximum annual management charge of just 1½% of an individual’s fund reducing to 1% after 10 years.  If a provider is making available additional services, such as personal financial advice, then an extra charge can be made.  However, this must be agreed with you in advance and you are still able to join that scheme without having to take the additional services. 
• A minimum starting contribution of £20.  The provider or manager can stipulate a minimum amount of contribution that they will accept at any time.  However, this cannot be more than £20.
• Free transfers between schemes.  If you want to transfer what you have already saved to a new scheme, you can do this without any charge being made by the existing scheme.  If the new scheme is a stakeholder, it must accept the transfer without charge.
• Retirement at any age from 50 to 75. (The minimum age will be 55 from 2010)
• A tax-free lump sum on retirement.
• A survivors’ pension.
• A lump sum payable to survivors on scheme member’s death.

Not only are stakeholder pensions designed to be low cost, they are also highly flexible. Legislation requires that you be allowed to contribute regularly or occasionally, according to your situation.  It is usually best if you adopt a regular pattern but if you need to stop for a while you can do so, without penalty.

Stakeholder pensions can offer a range of investment options, but they must include a fund for someone who wants to leave it up to the provider for example a Lifestyle Fund.  Lifestyle means that the fund starts off being invested in company shares or equities and then switched to safer but lower return investments like government stocks or gilts and then cash, as you approach retirement age.

If you leave your employer’s service the money that you have paid in is not lost.  The pension account will be maintained by the provider until you retire.

You might still be able to contribute to the scheme if you so wish but you need to check if you satisfy the conditions for doing this.

Stakeholder pensions are regulated by the Pensions Regulator.

The companies who provide them have to follow rules made by the Financial Services Authority (FSA).

The FSA have prepared consumer factsheets one of which contains a flow diagram or decision tree, to help people decide whether a stakeholder pension is right for them.

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© 2003 (USDAW) Union of Shop, Distributive and Allied Workers
This page: http://www.usdaw.org.uk/pensions/resources/1149591054_24766.html
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