The stakeholder pension was introduced on the 6th April 2001 because the state pension was deemed to provide an inadequate retirement income. Not everyone had access to an occupational pension so stakeholder pensions were brought in to provide a means of saving for retirement.
Access to Stakeholder Pensions
There is a requirement that all companies must provide access to a stakeholder pension scheme unless they are exempt. For example, the company employs less than 5 people or provides an occupational pension.
There is no compulsion for any company to contribute towards the scheme, although many do as part of a package of employment benefits. In either case, the employer must provide a stakeholder pension and a means by which payment can be made into the scheme directly from pay.
How Much Can be Paid into a Stakeholder Pension Scheme?
Whilst a stakeholder pension provider can specify a minimum monthly pension contribution, this cannot be set higher than £20 per month. This is to ensure that the scheme is universal and is accessible to everyone.
Even those that don't work can pay up to £3,600 into stakeholder pension schemes annually. All contributions will benefit from basic tax relief as the provider claims back tax from the HMRC. Higher-rate tax payers can claim back their tax via self assessment.
Low Annual Fees for Managing Stakeholder Pension Schemes
Current stakeholder pension rules state that a provider can charge a maximum annual fee of just 1.5% for the first 10 years and 1% thereafter. Some providers even charge less than this to attract new business. Other types of pension plans charge vastly more than this sum.
No Stakeholder Pension Transfer Fee
There is also no fee for transferring the plan to an alternative provider. This ensures that a stakeholder pension scheme remains freely portable. This is important as very few people stay in the same job until they retire. In fact, most people change jobs regularly.
When Can a Stakeholder Pension be Claimed?
Investors can claim from their stakeholder pension plan at any age between 55 and 75 years of age. Up to 25% of the pension fund can be claimed as a tax-free lump sum. Pension income is taxed in the same way as other earnings, although personal tax allowances rise with age.
Check if an employer offers a stakeholder pension scheme. Many employers match employee contributions, helping to boost retirement income substantially. Everyone should commence a stakeholder pension scheme as the state pension is inadequate and this situation is set to worsen in the future.
Those who found this article useful may be interested in reading about securing higher returns from a stocks and shares ISA or deciding whether a cash ISA or savings account is preferable. Finding out about level term life insurance is also vital for those with young families.
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