Stakeholder pensions were introduced on 6th April 2001 and are designed with the lower paid individuals in society in mind. The Government had the idea that if they made pension saving more accessible and more transparent (you can tell what you are being charged) more people would be encouraged ... Read review
Advantages: Tax efficient, low management charges, tax-free lump sum, retirement income Disadvantages: Not suitable for all, investment risk
Stakeholder pensions were introduced on 6th April 2001 and are designed with the lower paid individuals in society in mind. The Government had the idea that if they made pension saving more accessible and more transparent (you can tell what you are being charged) more people would be encouraged to save towards their retirement and thus reduce the number of people past retirement age drawing social security benefits from the State.
... ...Personal Pension Plan or a Stakeholder arrangement.
A Stakeholder pension plan is similar to a personal pension plan. Contributions are paid to an insurance company, invested on your behalf (a choice of investment funds is usually given) and the accumulated fund is used at your selected retirement age to secure retirement benefits.
The actual accumulated value of your fund will be dependent obviously on the size of your ... more
Stakeholder pensions were introduced on 6th April 2001 and are designed with the lower paid individuals in society in mind. The Government had the idea that if they made pension saving more accessible and more transparent (you can tell what you are being charged) more people would be encouraged to save towards their retirement and thus reduce the number of people past retirement age drawing social security benefits from the State.
All information contained within this opinion is factually correct as at 6th April 2004, however it should be noted that in this ever changing world, contribution limits, charging structures and tax treatment may differ in future years.
No part of this opinion should be treated as financial advice and if you are unsure as to any of the points raised or think you may be affected by the information contained you should seek independent financial advice.
The chances are that if you have membership of a pension scheme via your employer it will be either one of the following (or at times a mixture). A defined benefit arrangement (based upon your service and a defined salary), defined contribution (where you and your employer pay a fixed percentage of your salary in a “pot”), a Group Personal Pension Plan or a Stakeholder arrangement.
A Stakeholder pension plan is similar to a personal pension plan. Contributions are paid to an insurance company, invested on your behalf (a choice of investment funds is usually given) and the accumulated fund is used at your selected retirement age to secure retirement benefits.
The actual accumulated value of your fund will be dependent obviously on the size of your contributions, the period over which you have paid them and the investment returns/losses applied to your funds of choice. It should be noted that investment values can fall as well as rise. With this in mind you should also note that pension investments are long term arrangements that do tend to yield good long-term returns.
If you have your contributions deducted via your employers payroll tax relief will be granted at source. If it is an individual Stakeholder plan, tax relief is added to the contributions allocated to your policy. This applies to basic rate taxpayers. If you are a higher rate taxpayer the additional tax relief has to be claimed via your tax return on a year on year basis from the Inland Revenue.
Once contributions have been paid across to your Stakeholder provider they cannot be withdrawn until you actually choose to draw benefits from the policy. This at the present time can only be done after age 50 (this will be changing to 55 with effect from April 2010).
The actual benefits that can be provided by a Stakeholder policy are straight forward and the easiest to explain. At retirement up to 25% of the accumulated fund can be paid as a tax-free cash lump sum with the remaining part of the fund being used to secure what is known as an annuity at any age up to 75.
The actual annuity that could be provided upon retirement cannot be accurately projected due to the changing annuity market, however you have the choice of either securing your annuity with the provider with whom you hold the Stakeholder plan or you have the option to approach the open market. This means that you can pay the remainder of your fund to another provider to secure an enhanced benefit.
The main differences between a Stakeholder Pension Plan and a Personal Pension Plan are:
Stakeholder plans have a maximum Annual Management Charge equal to 1% of your accumulated fund value each year. Personal Pension Plans tend to have much higher charging structures.
Your Stakeholder provider cannot impose any penalties to your fund should you wish to stop paying contributions or transfer the value of your fund to another suitably approved pension arrangement.
Any Stakeholder providers must accept contributions in excess of £20.00 per month. Most Personal Pension Plans have a minimum of £50.00 per month.
The maximum contribution to a Stakeholder Pension Plan regardless of your other arrangements amounts to £3,600.00 per annum. The actual cost of doing this for a Basic Rate taxpayer is £2,808.00 per annum, the other £792 being added to the policy by the Inland Revenue.
You can pay contributions on behalf of other people. This means that a parent can set up a policy for their child and contribute the maximum on their behalf therefore building up a substantial fund over the longer term (subject obviously to investment returns).
As stated above, contributions receive tax relief at your highest rate of tax and you don’t even have to have any earnings to contribute (prior to the introduction of Stakeholder you could not contribute to a Personal Pension Plan without having any earnings).
As you are not required to have earnings to contribute to a Stakeholder Pension Plan a non-taxpayer receives a 22% boost to their fund.
If your employer does not have one of the arrangements mentioned earlier in my opinion they will probably fall into the category where they have to BY LAW offer you access to a designated Stakeholder Pension Plan via your company payroll. If this is not the case, ask why they don’t offer this facility. There are still some employers out there breaking the law.
Alternatively you can obtain an individual Stakeholder Pension Plan from most banks and building societies or direct from insurance companies such as Norwich Union, Prudential, Scottish Widow’s or Scottish Life.
From a personal point of view the introduction of Stakeholder pensions brought about concurrency legislation. Concurrency allows members of occupational pension schemes who earn less than £30,000.00 per annum to contribute to both their employers’ scheme and to either a Stakeholder or Personal Pension Plan. Prior to the introduction of Stakeholder this was not allowed. You were either a member of your employer’s scheme or had a personal arrangement. You could not have both.
Bearing in mind I work in the financial services sector I have seen very few low paid individuals take up the Stakeholder option and indeed take up nation-wide has been disappointing and well below the projections made by Gordon Brown and the Department for Work & Pensions. On the whole, my experience of Stakeholder has been via those individuals who wish to reduce their income tax liability or set up retirement funds for their children or grandchildren. Not the group of people it was targeted at.
If you are a low earner and are considering paying into a Stakeholder you should seriously consider seeking advice. Paying only the minimum amount into a Stakeholder plan for a short period of time may simply mean that you take yourself over the threshold for the Minimum Income Guarantee. Yes, you will be providing for yourself in retirement but effectively you will be paying now to save the government money in the long term.
As this is a regulated area of the financial services arena I cannot come out and say yes I recommend Stakeholder Pension Plans. Everybody has different financial aims and aspirations in retirement and therefore to make a general recommendation would be naïve.
What I would recommend is that you review your own pension provision as lets face it, how many of us could survive now on the single persons Basic State Pension of £77.45 per week (£123.80 for those who are married)?
Stakeholder Pension Plans are a good product and as with any tax efficient savings plan should be considered when planning for your retirement needs. If you have trouble understanding what arrangements you have, or what level of income you may require in retirement seek independent financial advice. IFA’s are no longer the cowboys portrayed in the 80’s and it is now a highly regulated industry. Just bear in mind that advisers employed by banks and building societies are not normally independent; they are tied to selling only their own products, even if they are not the most suitable for you.
You can find an IFA in your area by either looking in the Yellow Pages or by visiting The Society of Financial Advisers (SOFA) at www.sofa.org. They are a search function that will give you the name and address of a regulated independent adviser in your area.
Thanks for reading what is a bit of a lengthy serious opinion for me and I hope you found it helpful.
If you would like to learn even more about Stakeholder Pension Plans I recommend the following sites:
www.opra.co.uk www.fsa.giv.uk/consumer
Alternatively, if you have any queries relating to pensions (of any kind) there is a voluntary organisation called the Occupational Pensions Advisory Service (OPAS) who help resolve disputes or misunderstandings between pension scheme members, pension schemes and pension providers. There designated Stakeholder information and helpline numbers can be found at www.stakeholderhelpline.co.uk.
Thanks for taking the time to read and rate.
Steve :o)
Note: The ratings below are irrelevant to Stakeholder in general. Your level of customer service etc will depend upon the company you choose to invest with.
Advantages: Anyone can have one, low charges, you don't have to be employed Disadvantages: Value can go down as well as up
...you need to know about stakeholder pensions but were too bored to ask". I bet the very mention of the word "pension" has got most you either running scared or nodding off to sleep! Part of the reason why the p-word strikes so much fear into our hearts is that they seem so complicated, confusing and full of jargon, so what I am going to try and do is write a "dummy's guide" to stakeholders, putting what I know into plain English - including how to ... ...and pay into yourself). A stakeholder pension is a type of personal pension. ● Why bother getting a stakeholder pension? You may have heard talk recently of the "pensions timebomb" that is building up in Britain. This means that we have an ageing population, with more people living longer, and fewer young people in employment to support them; this means the government cannot afford to pay much to each individual pensioner (although the actual ...
Collingwood21 19.09.2002 (12.12.2003)
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Ciao members have rated this review on average: very helpful Review of Stakeholder Pensions
Advantages: Tax relief whether you pay tax or not Disadvantages: Cannot withdraw money until you retire
...been transferred into the new Stakeholder Pension plan since 6th April 2001. Stakeholder Pension (SHP) is a much better product with less restrictions and more flexibility. Stakeholder Pension should not be mistaken as a state pension run by the state. The Government has laid down the framework for Stakeholder Pensions but the scheme is actually run by banks and insurance companies. Stakeholder Pensions are voluntary private pensions in addition ... ...DWP (Department for Work and Pensions, formerly DSS) whereas a private pension is paid by insurance company. Any UK resident under the age of 75 can join a SHP plan. Now, even babies can start saving for their pensions! The scheme is very flexible, you may choose to save regularly or just pay an one-off contribution anytime into the plan. The regular contributions can be increased, decreased (subject to the minimum), or even stopped as you wish. ...
LBoy 16.07.2001 (30.01.2004)
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Ciao members have rated this review on average: very helpful Review of Stakeholder Pensions
Advantages: tax efficient, simple to set up Disadvantages: money locked in
...I recently took out a Stakeholder Pension from Scottish Widows. I already have a company (occupational) pension but took this out personally (a private pension) for a family member
Some employers will offer a stakeholder pension as their workplace scheme
Without wanting to bore you too much here are the basic types of Pension.
Occupational Scheme
------------------------------
If you are employed, your company probably has a pension scheme. ... ...the performance varies.
A Stakeholder Pension is just one type of private pension, although as I said an employer may adopt it as a workplace scheme
The key thing is that a Stakeholder scheme has low-ish management charges and must adhere to certain government rules, which are:-
A stakeholder pensions scheme cannot charge more than 1% a year on the value of each member's funds
Members must be able to transfer into or out of a stakeholder pension, ...
mark-southside 21.04.2004
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Ciao members have rated this review on average: very helpful Review of Stakeholder Pensions
Advantages: Money for nothing! Disadvantages: You can't touch the money until after you retire.
...tax bonus! The Government's Stakeholder pension scheme allows financially secure grandparents to achieve substantial effective tax benefits, by taking out pensions on behalf of grandchildren. The following are my own views and may not apply to everybody. I am not a financial expert, so please consult your financial advisors (and your grandchildren - or their parents) before acting. A grandparent can contribute up to £2,808 each to Stakeholder pensions ... ...following benefits. Bequest vs Stakeholder pension (assumes £2808 contribution per grandchild) If £2,808 is bequeathed in estate subject to Inheritance Tax, Inheritance Tax saved at 40% will equal -(£1,123) And the effective value of the bequest will be £1,685 The amount of taxed estate required to leave a bequest of £2,808 is actually £4,680 (tax at 40% being £1,872) but the above is taken as the effective amount of tax saved. If £2,808 Annual contribution ...
Rowan 03.10.2001
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Ciao members have rated this review on average: very helpful Review of Stakeholder Pensions
Advantages: Value for money, convenience, variety Disadvantages: Value added, status
...individual who pays into a stakeholder pension plan will get tax relief payments.
- Under present tax arrangements, for each £1 you pay into the plan the Inland Revenue will pay an extra 28p into your plan, even if you don't normally pay income tax.
- If you pay income tax at the high rate you will be able to claim back the extra tax from the Inland revenue at the end of the year.
- If you take a cash lump sum when you retire, it is currently ... ...I have had 2 stakeholder pensions. My 1st with Virgin Money I took out in haste in 2002, I had 2 other pensions I wanted to tidy up (an occupational pension I wanted incubated, the other a private pension) I also wanted to make use of the tax advantages. The Virgin stakeholder pension offers simplicity with a choice of only 2 funds (and free movement between) and ease of use.
I moved to my second stakeholder pension a few years later. I'd had some ...
JeffreyB 30.12.2004 (17.05.2005)
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Ciao members have rated this review on average: very helpful Review of Stakeholder Pensions
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