Stakeholder Pension Schemes

A Stakeholder Pension is a type of Personal Pension Plan designed to provide an optional lump sum and income in retirement. As with a Personal Pension Plan, it is available to any United Kingdom resident under the age of 75.

You do not have to be in employment to take out a Stakeholder Pension and you can also provide a Stakeholder Pension for your spouse/partner or your child/children. The policy reverts to the child/children at the age of 18.

A Stakeholder Pension incorporates a set of minimum standards established by the Government, which include:

  • A capped charging structure which is a maximum of 1.5% per year for the first 10 years and 1% per year thereafter
  • The minimum contribution cannot be greater than £20 in any period whether regular or a one-off payment
  • There are no penalties on stopping contributions to an individual's fund or on transferring the benefits to another scheme
  • You do not need to retire to draw your stakeholder pension benefits. You can take benefits at any time from 55. You will need to bear this in mind when deciding on your retirement plans. You can't withdraw any money from your pension fund before you reach 55.
  • At retirement, the option exists to take a quarter of the fund as a tax-free amount

The key to Stakeholder as to any other pension is to start contributing as early as possible and keep making contributions for as long as possible. That way your pension pot has time to fill up, and for the investment returns on the fund to compound through reinvestment over many years. The result should be a significant sum of money to invest when you retire.

No inheritance tax if you die before retiring

If you die before age 75 and you have not started to take benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of inheritance tax. Other tax charges may apply depending on the circumstances.

It is possible to continue past age 75 without taking benefits. If you die after age 75 your pension pot can still be passed to a nominated beneficiary free of inheritance tax, however a 55% tax charge will be applied if paid as a lump sum. If it is paid as an income to your spouse or dependent there will be no initial tax charge but any income paid would be subject to income tax.

A PENSION IS A LONG TERM INVESTMENT, THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.