Please use our new search engine to find out more about the range of products available from Corrigans.
|
 |
|
Financial > Pensions > Stakeholder Pensions
|
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.
..............................................................................................................
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.
..............................................................................................................
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 from your 55th birthday and at that time you can elect to claim up to 25% of your pension fund as a retirement lump sum. The remainder of your fund must be used to provide you with an income for life, usually 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.
If you have built up more than £67,000 in your Stakeholder pension by the time you are ready to claim your benefits you may want to consider a Drawdown Pension instead of an annuity. With this arrangement you leave your pension fund invested beyond your retirement date and withdraw an income from the pension fund itself. The level of income allowed by the Government is broadly the same as annuity rates within the open market for a pension that does not increase and is only payable to you. You are obliged to review the level of those withdrawals at least once every 3 years up to age 75 and annually thereafter. Sadly the limit does not go up any further after age 85 because the Government has not provided the statistics required to do so.
It is important to bear in mind that if you set the withdrawal at a high level, your investments will need to grow at a correspondingly rapid rate simply to maintain the value of your pension fund - and therefore the income available to you in the future. To obtain a rapid rate of growth you will need to take a higher degree of risk and this is not an option which is suitable for everyone.
You are free to move into an annuity at any stage in the future, and there is also the option to take a retirement lump sum too. But if you leave the pension fund invested, then the entire pension fund will be available for your survivor to have an income during the remainder of their life.
|
|
