Stakeholder Pension
A Stakeholder Pension (SHP) is a type of Personal Pension Plan designed to provide an optional lump sum and income in retirement. In common with a Personal Pension Plan, Stakeholder Pensions are available to any United Kingdom resident under the age of 75.
You, in conjunction with your adviser, choose the pension provider and make the arrangements for paying the contributions to the plan.
You can start a SHP even if you have a workplace pension or if you’re self-employed and don’t have a workplace pension. You don’t have to be working to take out a SHP and you can also provide a SHP for your spouse/partner or your child/children.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested. Tax treatment varies according to individual circumstances and is subject to change.
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The basics of a stakeholder pension
When you contribute to a SHP, your money is invested by the pension provider (usually an insurance company) to build up a fund/pension pot over a number of years.
A Stakeholder Pension incorporates a set of minimum standards established by the government, which include:
- A capped charging structure which is a maximum of 1.5% per year for the first 10 years and 1% per year thereafter
- The minimum contribution is £20 per month
- You can pay in lump sums whenever you want
- You can stop and start payments as you wish
- You can switch to another scheme at any time without penalty
- You do not need to retire to draw your stakeholder pension benefits. You can take benefits from age 55 (age 57 from 2028)
- At retirement, the option exists to take a quarter of the fund as a tax-free amount
The key point about SHPs, as with any other pension, is to start contributing as early as possible and keep making contributions for as long as possible. That way your pension pot has time to build up and the investment returns compound through reinvestment over many years. The result should be a significant sum of money to invest when you retire.
Frequently asked questions
- What is the maximum I can contribute to pension?
The annual allowance is the maximum you can pay into pension each year. It is the minimum of your relevant earnings or £60,000 (2023/24). If you have no earnings or relevant earnings below £3,600 gross, then the maximum you can pay into pension is £3,600 gross.
- When can I access my pension?
Currently you can access your pension from age 55. This will be changing in April 2028 to 57, 10 years before state pension age.
- What happens if I die?
If you die before age 75 and you have not started to take benefits from your pension the funds will normally be passed to your spouse or other elected beneficiary free of inheritance tax. Other tax charges may apply depending on the circumstances.
It is possible to continue past age 75 without taking benefits. If you die after age 75 your pension pot can still be passed to a nominated beneficiary free of inheritance tax, however if paid as a lump sum, tax at the beneficiary’s marginal rate will apply (2023/24). If it is paid as an income to your spouse or dependant there will be no initial tax charge, but any income paid would be subject to income tax.
- Is there a large fund availability?
There will be a limited choice of funds available within a stakeholder pension. For a wider choice of funds we may need to consider a personal pension or SIPP.
