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01/11/2007 - Stakeholder Personal Pension Plans – Your Questions & Answers BY Jonathan Grigson.

The UK government introduced the Stakeholder concept pension plan in 2001 and they offer a low cost, flexible way for individuals to save for retirement.

Advent of the Stakeholder Pension was partly due to the complex pension system in place with the UK and the lack of customers actively providing for their retirement themselves. 

It was considered that the complexity of the pension regime did nothing for the end consumer and the low pension take up rate was primarily down to the complex nature of the products and services. 

The Stakeholder product was therefore born.  

So, what does this simplified product actually do for me, the customer?  

The overriding consideration of any pension policy whether it is a Stakeholder or not is that the UK government will provide you with tax relief at your highest marginal rate. In simple terms this is free money given to you by the government in return for you diverting some of your income into a pension plan, how much dependant on what rate of tax you pay. 

Whether you are a basic rate or higher rate taxpayer the benefit proportionally for either category is considerable. Any growth upon your money invested into the policy is free of UK Income tax and capital gains tax although the plan administrator is unable to reclaim the tax paid on dividends from UK companies. 

But what does this policy actually do for me?

In a nutshell it is a means to save a large pot of money which at retirement age (an age you specify between 50 - 75) is released to purchase an annuity. The annuity is a product purchased from an insurer which is effect is an agreement to pay you either a fixed or variable amount of money upon a monthly or yearly basis for the rest of your life. There are many options open to you at this time to pay part of the income to your spouse or partner should you die or to have the income fixed or rise in line with an inflationary factor.

What is the difference between this Stakeholder plan and a normal Personal Pension?

The UK government designed the policy characteristics of the Stakeholder Pension to ensure that;

The Stakeholder pension scheme cannot charge more than 1% a year on the value of each member's funds ensuring it is a low cost policy.

Members must be able to transfer into or out of a stakeholder pension, or stop paying premiums for a time, without facing any extra charges.

All stakeholder pension schemes must accept contributions of £20 or more, though some are able to accept lower payments.

Stakeholder pension schemes must be run in the interest of their members, and will either have trustees or they will be run by scheme managers.

Can I get at my money whenever I want?

No, the funds are ‘locked’ into your pension. You are able to transfer to other providers if you wish but you cannot take the funds until your selected retirement date and at this time the funds can only be used to purchase an annuity (income).

What do you think about Pension planning and stakeholders?

There is no doubt that pension planning is a very important investment for your future and the tax advantages and flexibility of the stakeholder scheme make them a very attractive proposition. A strong consideration is that the funds invested into your investment pot’ are in no way guaranteed to grow and depending on where they are invested (you can choose this) can be at times be volatile.

Should you put your hard earned cash in the bank instead however you may have total security of these funds but growth will be severely limited.

About the Author Jonathan Grigson has been involved in the Insurance industry for over 15 years and is a respected industry commentator. He is a regular contributor of Insurance related articles and is a regular publisher at www.ukinsuranceinfo.co.uk