Stakeholder pension schemes were introduced in the UK on 6 April 2001 as a consequence of the Welfare Reform and Pensions Act 1999. They were intended to encourage more long-term saving for retirement, particularly among those on low to moderate earnings.
They are required to meet a number of conditions set out in legislation, including a cap on charges, low minimum contributions, and flexibility in relation to stopping and starting contributions. Employers with five or more employees are required to provide access to a stakeholder pension scheme for their employees unless they offer a suitable alternative pension scheme. The features of stakeholder pensions were intended to make them cheaper to sell than existing personal pensions and to provide a more transparent and attractive saving vehicle.
Although many stakeholder pensions have been taken out, they have largely not been successful in encouraging lower earners to save more. The government announced in May 2006 that it proposed to introduce a new pension scheme called Personal Accounts, and later renamed NEST prior to its introduction.
All stakeholder pension schemes must be registered with The Pensions Regulator.
Benefit options are as follows: use the entire fund to buy an annuity which will provide an income for the rest of your life; withdraw the entire fund as a cash lump sum, of which 25% will be tax free and the remaining 75% is taxed at your marginal rate; take a partial cash lump sum and use the rest to buy an annuity.
Originally the maximum annual charge was 1.0% of the fund value each year. Since 2005 this has increased to 1.5% of the fund value for each year until the 10th year and 1% thereafter.
There can be no penalty on exit or entrance to the scheme, and the minimum contribution is £20 per month. However, payments can be stopped at any time and a single contribution of £20 is enough to open a plan.
Benefits can be taken from age 55 and as of 6 April 2012, there are no longer financial penalties associated with taking your Stakeholder Pension over the age of 75.
Income can be provided via a secured pension (annuity), unsecured pension (income withdrawal/drawdown) or from age 75 an alternatively secured pension.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.