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Financial > Pensions > Stakeholder Pensions
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This was a failed attempt by the government to introduce low-cost pensions to the masses.
In its latest guise every employer with 5 or more people in the workforce must provide access to such a scheme but there is no requirement to make a contribution to it and individual versions of the pension are freely available to the general public.
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Charges are limited to 1.5% for the first 10 years of the policy, and 1% beyond that with the charge being taken out of the entire fund value every year.
With charges at such a very low level, insurance companies have been unable to develop a successful financial model for operating such schemes and so no advice is given to anyone who wants a stakeholder pension.
In addition to this, the range of funds available for investment are very restricted because there is no money to pay for active fund management and so these are effectively computer controlled pension funds. Investment performance to date has been modest and take up, in the absence of any active promotion for the scheme, has been correspondingly poor.
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There are no penalties to move the pension fund from one stakeholder provider to another whenever moving jobs or simply seeking superior performance, but the 1.5% charge for 10 years restarts for each new contract.
Benefits can currently be claimed at any time between your 50th and 75th birthday and at that time you can elect to claim up to 25% of your pension fund as a retirement lump sum. On 6th April 2010 the earliest age for claiming your benefits will rise to 55. The remainder of your fund must be used to provide you with an income for life in the form of an annuity.
You can design the annuity in a variety of ways to suit your personal needs. For example, there could be an income for someone else who survives you, a minimum payment period or even some provision to offset the effects of inflation each year - and better rates are available if you have impaired health when making your claims.
In exchange for the guarantee that comes with an annuity, the entire pension fund is given away to an insurance company and so there is nothing left for your friends and family when the income payments stop.
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