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What are they?

Stakeholder pensions are a type of personal pension. They have to meet certain government standards to ensure they are low charge and flexible.

Stakeholder pensions are open to everyone and may be worth looking into if you are self-employed or if your employer doesn’t offer a company pension. They allow you to contribute as little as £20 a month. You don’t have to be working to contribute to a stakeholder pension, and you don’t have to contribute every month if you’re unable to.

With stakeholder pensions, you can receive at least part of your pension payments from the age of 50.

Stakeholder pensions are a type of personal pension. They have to meet certain government standards to ensure they are low charge and flexible. The minimum payments are also low and you can stop and re-start payments whenever you wish.

How stakeholder pensions work

Stakeholder pensions work in much the same way as other private pensions. You pay money into your pension to build your pension fund. The government gives you tax relief on your contributions to boost the value of your pension. Currently, for every £78 that a basic rate taxpayer contributes to a stakeholder pension scheme, the government will pay a further £22 direct to the scheme.
The managers of the stakeholder pension scheme invest the pension fund on your behalf. The value of your pension fund will be based on how much you have contributed and how well the fund’s investments have performed.
When you retire, you use the fund you have built up to buy an annuity (a regular income payable for life) from a life insurance company of your choice.
How stakeholder pensions differ from other personal pensions
By law stakeholder pensions must meet a number of minimum standards to make sure they offer value for money, flexibility and security. The standards include:

Low charges:

  • managers can charge fees of up to one and a half per cent of your pension fund each year for the first 10 years you hold the product, and thereafter up to one per cent


  • you can switch to a different pension provider without the provider you leave charging you
  • you can start contributions from as little as £20, and pay weekly, monthly or at less regular intervals
  • you can stop, re-start or change your payments whenever you want – there are no penalty fees


  • the scheme must be run by trustees or by an authorised stakeholder manager, whose responsibility will be to make sure that the scheme meets the various legal requirements

Do you need a stakeholder pension?

This depends on:

  • how much you can afford to save for your retirement
  • how much you’re likely to receive from other pensions (basic and additional State Pension, occupational pensions and/or other personal pensions)

Working out what your other pensions will pay

The amount of basic State Pension you get depends on the National Insurance contributions you pay, are treated as having paid or are credited with throughout your working life.

Your additional State Pension is based on your earnings and your National Insurance contributions as an employee. (You cannot build up entitlement to the additional State Pension if you are self-employed.)

If you have an occupational pension your employer should be able to tell you how much you are likely to get.
If you have other personal pensions, your pension company should be able to give you a forecast.

Is a stakeholder pension right for you?

A stakeholder pension could be a good choice if:

  • you are self-employed
  • you aren’t working but can afford to pay for a pension
  • your employer doesn’t offer a company pension scheme
  • you do not pay into a company pension
  • you are on a moderate income and wish to top up the money you would get from a company pension

If you’re an employee you can opt out of the additional State Pension and instead put the National Insurance payments which would have gone towards it into a personal pension, including a stakeholder pension.

Getting financial advice

If you still aren’t sure if a stakeholder pension is right for you, seek expert advice from a financial adviser before making a decision. You may need to pay for this. Advisers must tell you whether they recommend from just one company’s products, from a limited range of providers or whether they choose from the whole market.

Where you can get a stakeholder pension

You get a stakeholder pension from financial services companies such as insurance companies, banks, investment companies and building societies. Other organisations such as trade unions may also offer stakeholder pensions to their members.
If there are five or more employees where you work, but no staff company pension scheme, your employer should offer you access to a stakeholder pension scheme through the workplace. If you haven’t been offered access to a scheme but are interested, ask your employer.
If you’re an employer find out more about your legal obligations with regard to stakeholder pensions from the Business Link website.

How much you can pay into a stakeholder pension

You can invest up to £3,600 a year (tax year 2004-05), even if you have no earnings. The amount you can pay in beyond this depends on your age, certain limits set by HM Revenue & Customs and how much you earn. You can also pay into a stakeholder pension for someone else.

Tax relief on contributions

If you are a basic rate taxpayer, for every £78 you contribute to a personal pension scheme (including a stakeholder pension) the government will pay a further £22 direct to the scheme. If you are a higher-rate tax payer, you can claim back the extra tax on your tax return.
You can find out more about tax relief on stakeholder pension contributions on the Pensions Advisory Service website.

© Crown copyright information issued by Her Majesty’s Government

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