Stakeholders pensions - frequently asked questions

What are the benefits?

The main benefits of a stakeholder pension are the low running costs. A stakeholder plan allows you the flexibility to stop, start or change your contributions, transfer your fund to another provider or change your retirement date between the ages of 55 and 75 (50 and 75 before 2010) without penalty. Stakeholder pensions have one type of charge, known as the Annual Management Charge (AMC) and this charge is currently capped at 1.5% for the first 10 years (1% thereafter). This therefore makes them one of the cheapest ways you can save for your retirement, plus due to the single charge it makes the costs clearer and easier to understand.

The charging structure also means that should you wish to transfer your pension to an alternative provider or to a SIPP for example, you can do this with no penalties or charges from your stakeholder pension provider. You should be aware that if you are invested in any with profits funds a market value adjustment may be applied if you transfer out or retire before you elected retirement date.

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What are the drawbacks of a stakeholder pension?

The simplicity of a stakeholder also means the investment options are relatively restrictive. Most stakeholder pensions offer a limited number of investment funds to choose from.

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Can I take out a stakeholder alongside other pensions?

Yes you can. Although you should be aware of your personal contribution limit and the annual allowance.

Use our interactive contribution guide.

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Where can I invest my money?

Most stakeholder pensions offer a limited number of investment funds to choose from. If you do not choose a fund your money will be invested in the provider's default fund.

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Do I have to contribute a minimum amount?

The minimum monthly contribution amount to a stakeholder pension cannot be more than £20.

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Can I withdraw my money at any time?

No. Once invested in a pension you cannot withdraw those funds until retirement. This must be done between the ages of 55 and 75 (50 and 75 before 2010). Then you will normally be able to take up to 25% of the fund as a tax free lump sum and use the remainder to provide a retirement income which will be subject to tax - either via an annuity or income drawdown.

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Can I transfer my existing pension to a stakeholder pension?

Yes, most existing pensions can be transferred into a stakeholder pension, although advice may sometimes be required. Before transferring you should check that the benefits of the stakeholder pension will be at least as good as those from your current pension plan. We also suggest that you check with your existing provider whether your actions could lead to valuable guarantees being lost or to unacceptably high penalties being levied. Seek expert advice if you are unsure of an investment's suitability.

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Can my employer contribute to my stakeholder pension on my behalf?

Yes, they can contribute by cheque or by direct debit. Employers' contributions are paid gross, meaning they should not deduct basic rate tax relief from the amount they contribute. For more information please contact our helpdesk on 0800 138 2121.

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Can I open a stakeholder pension for my child / grandchild?

Yes, plus the contributions still receive basic rate tax relief. The tax relief will be based upon your child / grandchild's status and not your own, meaning the amount you can contribute to your own personal pension will remain unaffected. Also, as they have no access to the money until their retirement it also means they can't fritter it away.

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What happens if I die before I retire?

The full value of your fund will normally be payable free of inheritance tax to the people you nominate (known as the beneficiaries).

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Can I transfer money back out of my stakeholder pension?

The funds held within a stakeholder pension can be transferred to another registered pension scheme should you choose. Under the rules of stakeholder pensions there can be no charge for moving your pension to an alternative provider although if you are invested in with profits funds you should check if there will be a market value adjustment.

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