Pension planning for the self-employed
Stakeholder pension
A stakeholder pension is a low-charge, flexible and portable pension
that must meet strict government standards. It may be worth considering
a stakeholder pension if you:
- are a moderate earner
- have an irregular income or low earnings but can afford to save
- wish to top up other pensions
An independent financial adviser may be able to help you identify
a pensions product that would best suit your particular circumstances.
Find
out more about stakeholder pensions at the Occupational Pensions
Advisory Service website.
How do they work?
Stakeholder pensions operate in much the same way as personal pensions
but must satisfy minimum standards:
- Capped charges - stakeholder pension providers
cannot charge more than 1.5 per cent of the value of your pension
fund a year to manage it for the first ten years, and then falling
to 1 per cent thereafter. Charges for existing members remain
at 1 per cent per year. However, pension providers are allowed
to make certain charges outside the charge cap - for example,
they will pass on stamp duty for buying and selling investments
on your behalf.
- Extras are optional - any extra services and
charges not provided for by law must be optional. They include
advice on choosing a pension or life insurance cover. You must
have agreed to these extra charges as a separate arrangement,
and the charges for the services must be clearly defined.
- Low minimum payments - schemes will accept
contributions of as little as £20, or even less.
- Flexible contributions - you choose when and
how often you pay into the scheme. If you stop paying your contributions
for a time the stakeholder pension provider will not charge you
extra.
- Penalty-free transfers - if you choose to transfer
into or out of a stakeholder pension there will be no extra charges.
How to choose a stakeholder pension
Although stakeholder pension schemes are required to guarantee a
minimum standard, it's wise to shop around. It is a good idea to
consider:
What the charges are.
- Is advice provided as part of the deal? What must you pay extra
for?
- Where your contributions will be invested and what input you
have?
- Whether there is a cooling-off period in case you change your
mind.
See
the comparative tables on the FSA website. You can also search
the register of stakeholder pension schemes at the pensions regulator
website.
Subjects covered in this guide
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