Stakeholder Pensions - What Is A Stakeholder Pension & How Does It Work?

A stake holder pension is not a new kind of pension as such. A stakeholder pension is in fact a personal pension which has a set of conditions to which it must adhere in order to be called a stakeholder pension. It can also be a set of conditions applied to  money purchase occupational schemes. The reason for this is to make a personal pension simpler and easier to understand. This is achieved by the stakeholder pension minimum standards which are:

1. Low charges (of around 1% per annum of the pension fund)

2. Easy portability which means you can transfer the stakeholder pension to another pension (whether it is another stakeholder pension or other personal pension) without incurring a penalty.

3. It must be simple i.e. they have to offer you a standard investment option which means you don't have to choose investment funds yourself.

4.Contribution must start at a low price and be flexible. The minimum contribution must be £20 and you do not have to make regular contributions unless you want to.

5. Stakeholder Pensions must keep you very well informed with a statement at least once a year and you must be told one month before there are any changes to the Stakeholder Pension charges.

Overall the main advantages of a stakeholder pension are its tax advantages, its low running costs, the fact that they are simple and clear, that they are easy to transfer at no cost to you and that they are value for money.

The disadvantages of a stakeholder pension are that there is no guarantee that your stakeholder pension will keep up with inflation, that the pension amount you get is unpredictable and that there is an investment risk involved.