Stakeholder Pensions Guide

Scottish Life Stakeholder Pension

What are Stakeholder Pensions?

Stakeholder pensions are low cost, affordable pensions aimed particularly at those who currently do not have the right options available to save for their retirement.

The main target group is those earning between £10,000 and £20,000 a year. However, anyone can have a stakeholder pension, including those with no income and high earners.

Commercial financial services companies will offer stakeholder pension schemes, which must be registered with the Her Majesty’s Customs & Revenue and The Pensions Regulator.

Stakeholder pensions were available for individuals to pay into from 6 April 2001.

Every business with five or more staff should have had a stakeholder pension or recognised alternative scheme in place by 8 October 2001.

Stakeholder pensions have to meet a number of minimum standards to ensure they offer value for money, flexibility and security.

The minimum contribution to a stakeholder pension cannot be more than £20 (schemes may set a lower minimum contribution if they wish) and contributions can be weekly, monthly or at other intervals, or can be a single, one-off, contribution.

Charges for membership of the stakeholder pension scheme must be limited to no more than 1% per annum of the value of the individual member’s fund.

Members of a stakeholder pension scheme must be able to transfer into or out of the scheme without facing any extra charge.

The maximum amount that can be paid into a scheme is £3,600 (including tax relief) each year.

Stakeholder pensions are tax efficient for both employees and employers if they contribute.

Benefits can be taken between the ages of 50 and 75.

25% can be taken as a tax-free lump sum at retirement and the rest used to buy an annuity by the age of 75.

Schemes must provide information and explanatory material to potential members, but providers will not be required to offer individual financial advice within the 1% charge (though they can if they wish).

There may be additional charges for individual financial advice or for other optional services offered by the scheme. These are subject to separate contract.

Employees do not have to join the stakeholder pension scheme.

Unless exempt, every employer must arrange access to a stakeholder pension scheme for employees who earn more than the National Insurance lower earnings limit (currently £67 per week).

Employers do not have to make contributions to employees’ stakeholder pensions, though they can if they wish.

To look after the interests of their members, schemes must have either trustees or stakeholder managers. The stakeholder manager could be an insurance company, bank, building society or independent financial adviser and must be authorised by the Financial Services Authority. Some schemes can put limits on their membership (for example, allowing schemes only for members of a particular trade union or profession)

Stakeholder Pension Guide Copyright © is4profit Ltd 2000-2008
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