Stakeholder pensions

Stakeholder pensions are a form of defined contribution personal pension. They have low and flexible minimum contributions, capped charges and a default investment strategy if you don’t want too much choice. Some employers offer them, but you can start one yourself.

How stakeholder pensions work

Minimum standards

Stakeholder pensions must meet minimum standards set by the government. These include:

  • Limited charges
  • Low minimum contributions
  • Flexible contributions
  • Charge-free transfers
  • A default investment fund – your money will be invested into this if you don’t want to choose

It helps to think of defined contribution pensions as having two stages.

Stage 1 – While you are working

Your contributions are usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. You can usually choose from a range of funds to invest in. Remember though that the value of investments may go up or down.

If you need help with deciding how to invest your contributions, follow the links below:

Pension investment options – an overview

Stage 2 – When you retire

Once you stop working and retire you can access money in your stakeholder pension. In fact, you don’t have to retire to take money out of your pension as you can do this from the age of 55.

There’s a lot to weigh up when working out which option or combination will provide you and any dependants with a reliable and tax-efficient income throughout your retirement. Be sure to use the free, government-backed Pension Wise service to help you understand your options or get financial advice.

Get more information about converting your pension fund pot into retirement income by reading our guides below.

Retirement income options tool

Options for using your pension pot

Retirement – why should I get advice?

Setting up a stakeholder pension

If a stakeholder pension is offered through your employer, it will have chosen the pension provider and may also arrange for contributions to be paid from your wages or salary. The employer may contribute to the scheme. The pension provider claims tax relief at the basic rate and adds it to your fund. If you are a higher or additional-rate taxpayer, you’ll need to claim the additional rebate through your tax return.

You can also set up a stakeholder pension for yourself. Their flexibility, low minimum contributions and capped charges can be of particular benefit if you’re self-employed or on a low income.

Changing jobs

If you change jobs, you should check to see if your new employer offers a pension scheme. You can continue paying into an existing stakeholder pension but you may find you’ll be better off joining your new employer’s scheme, especially if the employer contributes. Compare the benefits available through your employer’s scheme with your stakeholder pension.

If you decide to stop paying into a stakeholder pension, you can leave the pension fund to carry on growing, mainly through investment growth, but check to see if there are extra charges for doing this.