Pension planning for the self-employed

The difference between a stakeholder pension plan and a personal pension plan

Personal pensions are private pension schemes designed mainly for people who wish to top up State Pension provision, and cannot or do not want to join an occupational pension scheme. They are typically run by financial organisations such as insurance companies, banks and building societies.

Unlike stakeholder pension schemes, personal pensions don't have specified minimum standards. For example, they might charge for:

• changing the amount of your usual payments or making lump sum payments
• skipping payments
• transferring your pension to another provider

They may also charge a higher annual management fee that the 1.5 per cent to which stakeholder pensions are limited.

Personal pension plans can also be more complicated and less flexible than stakeholder pensions. There are two main reasons to consider one:

Investment choice - stakeholder schemes might offer a limited choice of funds in which to invest your contributions. Some schemes only offer 'tracker funds', that rise and fall in line with stock market indices. If you want more flexibility you should consider a personal pension plan.

Extras - the personal pension provider may offer pensions advice and a choice of benefit options, such as life insurance, as part of the package. Those with complicated financial affairs or a lot of money to invest may want to get advice from a financial adviser.

Choosing a scheme
When choosing a pension plan, it is a good idea to consider:

• your current personal circumstances and plans for the future
• the reputation of the company
• past results - but take care, past performance is no guarantee of future success
• penalties and charges that may be made if, for example, you fall ill or take a career break
• how you pay into it - whether you have to pay a regular sum for a given number of years or are able to change this, and whether you will be charged for doing so
• whether you can control how your money is invested - some companies offer "ethical" or "green" scheme

Make sure you compare schemes by shopping around to find one that suits your needs. Consult the comparative tables on the FSA website.

Subjects covered in this guide

• Introduction
• Assessing your pension needs
• How a personal pension works
• The basic State Pension
• Stakeholder pension
• The difference between a stakeholder pension plan and a personal pension plan
• Other pension products
• Other tax-efficient savings
• Transferring your pension
• Keeping track of your pension

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