What You Need To Know About Stakeholder Pensions
For those of you who are thinking about planning for your retirement, you will need to do a bit of research on pensions to find the best way to save for your future retirement. This article is about stakeholder pensions and will explain a bit about them and how they work.
So first of all what is a stakeholder pension? Well, it is not a new kind of pension so to speak, but it is a personal pension which has a set of conditions under which it must operate to be called a stakeholder pension. It is not limited to being a personal pension as it can also be a set of conditions which apply to a money purchase occupational scheme.
The purpose of the set of conditions is to make the pension simple, comfortable and good value for money. So what is the set of conditions that apply to stakeholder pensions then? Well here are the minimum standards that apply to it:
- The charges must be low at around 1% of the fund invested each year.
- It must be designed to be simple which is done by having a standard investment option so that you do not have to choose the investments yourself.
- It must be portable, meaning that you can transfer the stakeholder pension on to a different pension which can be another stakeholder pension or another personal pension. Also if you do this, you would not be penalised for transferring it.
- The pension provider must keep you informed of any changes in the charges you have to pay for it by letting you know one month before the changes take place. They must also send you a statement at least once a year, so you are kept up to date with your account.
- The minimum contribution must be £20, and you must not be obliged to pay in every month unless you wish to do so.
So what are the advantages of a stakeholder pension? The main advantages are that it has low charges, that it has tax advantages, that they are easy to understand and relatively simple, are generally speaking good value for money and that you can transfer it to another pension without incurring any fees.
Are there any disadvantages to it? Well, the main drawbacks are that the pension amount you will receive in the future is not predictable, that there is investment risk and that there is no guarantee that your stakeholder pension will keep pace with price inflation.