Stakeholder Pensions are available to practically everybody, and can be a more economical way of contributing to retirement saving. They are currently offered by many insurance companies, banks, investment houses, and some retailers offering financial services. They may also be offered by some employers, since all employers with more than five employees had to offer access to a Stakeholder Pension if they did not have any other pension arrangements for their employees by 8 October 2001.

Individuals may take out Stakeholder Pensions for:

• themselves,
• their spouses, and
• their children. Any plan taken out for a child reverts to them when they reach the age of 18.

Eligibility

A stakeholder pension is available to almost anyone as a means of saving for retirement. It is available regardless of status such as:

• Employed.
• Self employed.
• Not employed.
• Tax payer.
• Not a tax payer.

The only qualifications that apply to Stakeholder Pensions are:

• the contributor must be under 75 years of age, and
• the contributor must be resident in the U.K.

Tax Relief

• Basic rate tax relief is given at source on all contributions to Stakeholder Pensions.
• Even if an individual is not a taxpayer, they still get the benefit of tax relief.
• This is done by means of paying the contributions at a ‘net of tax’ rate, and the government refunding to the pension providing company the tax rebate. Thus, for every £78 contributed by an individual at the present basic rate of tax, the government contributes £22.
• If the contributor is a higher rate tax payer, relief is given by the annual self assessment.

Minimum Standards

The government has set down certain minimum standards for a scheme to be accepted as a Stakeholder Pension:

• The charges cannot exceed 1% per year of the member’s fund (and there are no initial charges).
• No penalties are allowed on: transferring the benefits to another scheme, or stopping contributions to the fund.

• The minimum contribution to a plan may not be set at more than £20 per period – whether as a regular payment or a one-off payment.
• There must be a default fund for members who do not wish to make investment decisions.
• Statements must be issued at least annually.
• Up to 10% of the fund can be used as a life assurance premium.
• The scheme must allow for the option of up to 25% of the fund to be taken as a tax-free lump sum at retirement.
• Retirement must be between the ages of 50 and 75.

Many of these standards apply also to Personal Pension Plans, but some of these standards mean that Stakeholder Pensions are cheaper than Personal Pension Plans.

Contributions

Everyone who is eligible may pay contributions up to the current earnings threshold (which is currently £3,600 gross) regardless of earnings. Thus, the actual maximum amount after the tax relief at source is £2,808 at current tax rates.

Higher amounts are allowable related to the earnings and the age of the contributor as follows:

This is subject to an overall earnings cap (currently of £105,600 per year).

Nomination of a basis year (‘benchmarking’) is available for Stakeholder Pensions as for Personal Pension Plans (see Chapter 3).

Concurrency

This term means that you may contribute to a Stakeholder Pension at the same time as other schemes, or even another Stakeholder Pension. Overall contributions in any tax year must however be kept within the limits described above. The rules depend on what type of other scheme is involved.

Occupational scheme

There are three types of occupational schemes:

• New regime schemes. These schemes are treated for concurrency purposes like Personal Pension Plans. Stakeholder Pensions may be paid concurrently.
• Old regime schemes. These schemes only allow concurrency for people who are:

N.B. If you are in doubt as to the category of your occupational scheme, the Inland Revenue or your plan administrator can advise you.

• Scheme providing lump sum payment on death only. Concurrency is allowed up to a maximum of the greater of:

Personal Pension Plan

Concurrency is permissible, but total contributions must not exceed the limits described above.

Another Stakeholder Pension

You may be in as many Stakeholder Pension Plans as you like, but the total contributions in any tax year must not exceed the limits described above.

Employer Stakeholder Schemes

Employers are obliged to offer at least Stakeholder Schemes to relevant employees unless they have fewer than five employees.

Relevant employees are all employees except the following:

• Those who have worked for the employer less than three months.
• Those who are members of the employer’s occupational scheme.
• Those who have declined to join the occupational scheme.
• Those who have earned less than the Income Threshold for National Insurance purposes for at least one week in the last three months.
• Those ineligible to join Stakeholder schemes.

If the employer sets up a Stakeholder scheme, they must:

• Choose a Stakeholder scheme from the OPRA register.
• Discuss the choice with employees or their representatives.
• Communicate the name and address of the scheme to all relevant employees or their representatives.
• Arrange for payroll deductions of contributions for all those employees choosing to join the scheme.
• Send all contributions (employer and employee) to the Stakeholder provider, maintaining proper records of this.
• Offer access to the scheme to all employees when they complete three months’ employment.