Stakeholder pensions explained
If you're looking to get a stakeholder pension you can learn more about how they work, tax rules and things to be aware of with interactive investor
What is a stakeholder pension?
A stakeholder pension is a flexible type of defined contribution pension.
Like other defined contribution pensions, your contributions to a stakeholder pension receive tax relief. The money is invested over time to provide you with a pot of money when you retire.
A stakeholder pension differs to other personal pensions as contributions are more flexible. There are also guidelines for stakeholder pensions, which include:
- Capped charges – management fees are capped at 1.5% for the first ten years and then 1% thereafter.
- No charge for transfers – your provider cannot charge for transfers in or out.
- Low minimum contributions – minimum contribution limits must be £20 or lower.
- Flexible contributions – you can stop and start contributing without penalty. Contributions can be made regularly or as lump sums.
- Default investment funds – stakeholder pensions must offer a default investment fund, in case you don’t want to choose your own investments.
How can I get a stakeholder pension?
You can get a stakeholder pension from various pension providers, insurance companies and high street banks. Anyone can open a stakeholder pension.
Some employers may offer stakeholder pensions as a workplace pension. Your employer may be willing to contribute to your stakeholder pension if it is not your workplace pension.
As stakeholder pensions are open to anyone and have low minimum requirements, they may be particularly suitable for people who are unemployed or are earning a low-income.
Making contributions to a stakeholder pension
Stakeholder pensions have flexible contribution rules. You can stop and start making contributions without penalty. Government guidelines dictate that minimum contributions limits must be £20 or lower.
When you pay into a stakeholder pension, your contributions receive 20% tax relief. This will be claimed automatically by your provider.
If you are a higher-rate taxpayer, you could claim an additional 20% or 25% tax relief via your self-assessment tax return.
Your annual allowance for contributions is 100% of your salary (up to a maximum of £40,000). If you are not earning, you could still contribute up to £3,600 gross a year to your pensions.
Making withdrawals from a stakeholder pension
Withdrawing money from a stakeholder pension works in the same way as other pensions. You can access your stakeholder pension from age 55 (57 from 2028).
You can take up to 25% as a tax-free lump sum. The remaining 75% is subject to income tax when you withdraw it.
There is no obligation to start taking benefits when you turn 55. You can leave your stakeholder pension until you are ready to access it.
Stakeholder pensions FAQs
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The ii SIPP is aimed at clients who have sufficient knowledge and experience of investing to make their own investment decisions and want to actively manage their investments. A SIPP is not suitable for every investor. Other types of pensions may be more appropriate. The value of investments made within a SIPP can fall as well as rise and you may end up with a fund at retirement that’s worth less than you invested. You can normally only access the money from age 55 (age 57 from 2028). Prior to making any decision about the suitability of a SIPP, or transferring any existing pension plan(s) into a SIPP we recommend that you seek the advice of a suitably qualified financial adviser. Please note the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future.