Stakeholder Pensions
Stakeholder and personal pensions are money purchase pensions. However, there are some differences between them - stakeholder pensions have to meet certain standards set by government.
Stakeholder Pensions were introduced by the Government on 6th April 2001. The main emphasis is that there are that minimum standards that apply to them, and they are:
- Capped charges
Stakeholder pension providers can only charge you a maximum of 1.5% of the value of your pension fund each year. This reduces to 1% of the value of your fund after ten years.
Any extra charges for other services must be optional.
Pension providers are allowed to recover costs and charges they have to pay for certain other things, such as: paying stamp duty and charges for buying and selling investments for your fund. These expenses are found in other pension schemes, not just stakeholder pensions.
- Low minimum payments
You must be allowed to pay in amounts as low as £20. Some schemes choose to set an even lower minimum.
- Flexible contributions
You choose when and how often you pay into the scheme, so you can make regular or occasional contributions. There are no penalties if you miss a payment. - Penalty-free transfers
If you want to move your stakeholder fund to another provider or another pension scheme, there will normally be no charges for making the transfer. If you have invested in a with-profits fund you should check whether your provider will make a 'market value reduction' if you switch.
- Simple investment choice
If you don't want to choose how your savings are invested, the scheme automatically puts your money into a default investment fund. The default fund may be called the 'lifestyle' option. This means your money could be invested in higher-risk growth funds while you are young, and then transferred automatically to safer investments or deposits the closer you get to retirement. Many stakeholder pensions offer a choice of several funds.
