Many employees and employers have been sending questions in to Pink Finance on "Stakeholder" pensions. Never wanting to miss an opportunity, we've decided to compile the most popular ones for your benefit.

Individuals

What is a "Stakeholder" pension plan?

Stakeholder pensions were introduced in April 2001, in order to encourage more people to save for their retirement. They have lower charges and more flexibility than their predecessors. In theory they should offer Low costs, Easier access and Fair terms. This in turn should encourage more people to save. Without doubt the new product, is better for the consumer.

What charges are levied on a "Stakeholder" scheme?

The pension provider is only allowed to deduct a maximum of 1% per annum, of the fund value. This does not take into account payment for advice, financial advisers could charge extra for their advice. The 1% does not take account for advice you may receive. It is possible you could be charged extra for this part of the service. The life assurance companies are not expected to make clear profit on Stakeholder for around 15 years.

Can you invest into ethical funds?

Many "Stakeholder" schemes are offering an ethical option. Remember to look at the screening process carefully and compare performance figures. Some providers have been in this area of pension planning, longer than others. They may have more established criteria for selecting and screening shares. 

What is the maximum contribution I'm allowed to make into a "Stakeholder" scheme?

£3,600 per annum is the maximum contribution permitted each year. Further contributions can be made into a Personal Pension Plan. You should look at the Pink Finance tax tables for the maximum percentages on personal pensions. You can pay your Stakeholder contributions either as lump sums or on a regular monthly basis.

Where can I buy a "Stakeholder" plan?

You can buy a scheme direct from your bank, supermarket and Independent Financial Advisers. Remember banks and supermarkets are likely to offer their own products and financial advisers, may charge for their independent advice. The commissions on Stakeholder are fairly low and it would therefore be acceptable for them to request a set fee. This method is far better for the consumer in the long run.

Who's eligible to contribute?

Anyone earning or receiving income in the UK can contribute up to the age of 75. This means grandparents could open one for the grand children as a long-term investment. People with un-earned income from property and non-earning partners can all benefit.

Do the government add money to my contribution?

Yes, the government add tax relief to your contribution at your highest rate. £100.00 becomes £129.00, as if by magic. Higher-rate tax payers can claim further tax relief through their tax return. Pensions are still the most tax efficient form of savings. 

Are there any other tax benefits?

Yes, all of your growth within the fund only incurs a 10% tax charge of dividends. This means that your money is likely to grow faster within a pension, than say other types of investment.

When can I take the benefits from my plan?

You can take the benefits any time between the age of 50 and 75. Normally the benefits are smaller, the earlier you take them. You should start a pension as early as you can afford. This will give time to earn growth on your early contributions and build a bigger fund.

How do I take the benefits?

You are able to swap your capital for an income - or take up to 25% tax free lump sum, with a reduced income. These methods have traditionally involved buying an annuity. With interest rates so low, it might be wise to defer this decision. Up to the age of 75, you could use a new type of cash account. This would allow the money to remain invested in the market, whilst withdrawing amounts of capital to fund retirement. These are decisions you should not make yourself and you should seek independent financial advice. 

Extra Questions for Companies

What are my company's responsibilities?

As an employer you must designate a Stakeholder Scheme, provide sufficient information and deductions direct from pay roll.

How many employees must I have in order to have a "Stakeholder" scheme?

If you have five or more employees, you will need to designate a scheme. This includes Directors and Part Time employees.

How can I nominate a scheme?

You need to obtain a certificate from a Stakeholder Pension provider. You can do this direct or gain advice from a financial adviser. It would be best to find an adviser who would be prepared to offer this service on a fee basis, especially if it is unlikely that your employees will use the scheme. 

What if I already offer my employees a pension scheme?

There are exemptions for employers that offer more favourable terms than "Stakeholder". If a company offers an employee a contribution of 3% of earnings they will not need to adopt a "Stakeholder" pension. The same applies if there is an existing occupational pension scheme for employees. It is still worth seeking advice, to make sure that you are exempt.

What are the penalties for not complying?

The government can levy a fine of up to £50,000 on your company. It only takes one employee to complain! 

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