About Stakeholder Pensions
Stakeholder pension is a type of low-charge pension, which is regulated by the government. The government has laid down certain minimum standards to ensure that the stakeholder pension provides basic value to the contributors. You can buy a stakeholder pension from a commercial financial services company, such as a bank, insurance company or building society. Stakeholder pensions have to satisfy a certain government standards so as to ensure that the stakeholders get value for the money they have invested.
These standards include:
Charges: There is a limit set on the amount that the stakeholder pension provider companies can charge you for managing your funds. This charge cap is regulated by the government. You have to pay a maximum of 1.5% of the total value of your fund each year for the first 10 years. For example, if the value of your fund is £10,000, you have to pay a maximum charge of £150 every year. For those people who entered into the scheme after 6 April 2005 the cap is 1.5% for the first 10 years, after which it will reduce to 1% till you remain member of the scheme.
Flexibility:As the word flexibility denotes, you are not under any legal obligation to contribute every week or month. You may contribute regularly or occasionally. However, it is always advisable to contribute regularly. Another feature of flexibility is that you can even change the amount of contribution to suit your circumstances. You can pay as little as £20 and stop paying without attracting any penalty. You can start it again at some later date if you like. If you are employed, you can request your employers to deduct your contribution directly from your salary and put it into your pension fund. If you change your job, don't have to close your current account and start a new one. You would need to fill up a few forms after which the changes will come into effect and your new employer can contribute the money into your existing account. You can even switch over to another stakeholder pension plan any time you like without having to pay any transfer or administrative charges.
Information: It is mandatory on the part of your stakeholder pension provider to keep you posted with the latest information about your fund account. The information may include an annual statement about your total annual contribution and how the fund is growing. It would also forecast the value of your pension in today’s prices. This forecast is called Statutory Money Purchase Illustration. The purpose of the forecast is to help you to determine whether you are providing yourself sufficiently for your retirement.
Investments: You must understand that your contributions are invested in certain market funds. The performance of your stakeholder pension fund, therefore, depends upon the type of fund you have selected and its performance. Some investments, for example, are made in stock market and their value is likely to rise and fall. This shows that your fund is not necessarily protected against loss. In any case if you are apprehensive about the correctness of your investment decision, you may opt for ‘lifestyling’ which means that your pension savings would be transferred to less risky investments. In view of the flexibility provision you can even turn off the lifestyling before it begins.