Stakeholder pension scheme

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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.

Conditions[edit]

All stakeholder pension schemes must be registered with The Pensions Regulator.

Like personal pension schemes, stakeholder pensions must provide an income in retirement using a minimum of 75% of the fund. Up to 25% of the fund can be taken as a tax free lump sum.

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.[citation needed]

Income can be provided via a secured pension (annuity), unsecured pension (income withdrawal/drawdown) or from age 75 an alternatively secured pension.

See also[edit]

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