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What is a Stakeholder Pension?

By: J.A.J Aaronson - Updated: 12 Jan 2019 | comments*Discuss
Stakeholder Pension Cheap Pension

Stakeholder pensions have been a point of contention amongst government and pension providers for some time. Introduced in 2001 in an effort to encourage those on low and medium incomes to save more for retirement, their low uptake has led many to suggest that the scheme has been a failure. The ‘failure’ of stakeholder pensions has led to the proposed introduction of a new Personal Account that is likely to perform the tasks intended by those who established the stakeholder scheme.

That said, stakeholder pensions can present an attractive option for those looking for a low charge arrangement. They are flexible and cheap, and are available from many high street financial providers. Furthermore, if you work for a company that employs five or more people, your employer is obliged to provide the opportunity for you to join a stakeholder pension scheme unless they offer a comparable alternative.

Stakeholder Pension Rules

Stakeholder pension schemes are regulated by the Pensions Service, and must adhere to a strictly enforced set of rules. To begin with, management fees are statutorily limited. Fees for the management of a stakeholder pension opened on or after 6 April 2005 must not exceed 1.5 per cent annually. After ten years, if the pension holder is still a member of the scheme the cap is reduced to 1 per cent. If you entered a scheme before this date your cap rate will remain at 1 per cent unless you switch providers.

Similarly, pension managers may not charge pension holders a fee for entering or exiting a scheme. As such, you may change pension providers at will, without incurring financial penalty – although the ten year capping period will recommence every time you switch to a new provider.

Another of the most significant advantages of stakeholder pensions is the low minimum for initial investments. A stakeholder pension can be opened with an initial contribution of just £20. Some pension managers accept even lower initial contributions, although there is no legal necessity for them to do so. Furthermore, pension managers have a fiduciary responsibility to pension holders; this means that the funds must be run in the interest of the members, and should be subjected to rigorous oversight procedures. As such, a stakeholder pension may well be a good choice for those who wish to make a low-risk investment.

Stakeholder Pensions For Employers

If you are an employer and you have five or more employees, you have an obligation to provide access to a stakeholder pension scheme under the Welfare Reform and Pensions Act 1999. For the purposes of pension provision, employees are only counted if they earn more than the National Insurance lower earnings limit. This is set at £95 per week or £412 per month for 2009-2010.

You can exempt your business from these obligations by providing access to an occupational pension scheme. This must be available to all members of staff within one year of them commencing work for you. You must contribute the equivalent of at least 3 per cent of each relevant employee’s earnings to the scheme.

Stakeholder pensions are still popular amongst those looking for a safe, cheap way of saving for retirement. You may also wish to look at the other articles in this section for a broader view of the types of pension schemes on offer.

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[Add a Comment]
I was put into a pension scheme by my works, in 2002,I left after 1 year and i only paid £900, into the fund, since then I have been looking after my disabilied wife and I've not worked since, I have had a pension forecast and it says that i will have a reduction of £26.00 per week when in reach 66 in 2021, so for just paying into that fund it has cost me 1200, per year off my full pension,but I was not told this at the time my employer set me up in this scheme,is there anyone to help me get any compensation for my losses
Stuart55 - 12-Jan-19 @ 10:02 PM
Hi I think I opted out of serpsand put in to a private pension just wondering what to do next if there's any compensations thanks Phil
Phil - 23-Mar-18 @ 10:02 PM
Col - Your Question:
I have been told under the new state pension rules I will receive 123 a week , even though I have 49 years full n I contributions, they say on my pension statement I opted out of SerpsWhich I know I never did.How can I find out what's going on with my pension Thankyou in advance

Our Response:
Please see the Pension Advisory Service link here which should be able to help you further.
MoneyExpertise - 21-Jun-16 @ 1:44 PM
I have been told under the new state pension rules I will receive 123 a week , even though I have 49 years full n i contributions, they say on my pension statement I opted out of Serps Which I know I never did. How can i find out what's going on with my pension Thankyou in advance
Col - 20-Jun-16 @ 9:41 PM
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