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    Home » what are they and should you get one?
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    what are they and should you get one?

    userBy userSeptember 15, 2024No Comments3 Mins Read
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    When the time comes, you will also need to decide how to use it to generate your retirement income. Similarly to other types of personal pension, contributions are boosted by tax relief equivalent to the rate of income tax you pay and when you access it, you will be able to take 25pc as a tax-free lump sum.

    But unlike other schemes, stakeholder pensions need to meet certain criteria. Lucie Spencer, of wealth manager Evelyn Partners, says: “A stakeholder pension must meet set government standards – such as minimum requirements on charges and contributions – to make sure it is good value.”

    The features of stakeholder pensions

    • A minimum contribution of £20 a month or less – ensuring they are a viable option for those with lower earnings
    • Flexible contributions – ensuring savers can stop and start contributions
    • Capped charges – the maximum charge is 1.5pc for the first 10 years, falling to 1pc thereafter
    • No transfer charges – for those who decide to switch providers further down the line
    • A default investment option – for savers that do not want to choose where to invest their contributions

    How do stakeholder pensions differ from other types of personal pension?

    Stakeholder pensions must meet minimum standards set by the Government. This means that somebody who takes out a stakeholder pension knows exactly what they can expect from their pension and there shouldn’t be any surprises.

    However, while stakeholder pensions have capped charges, default investment options and flexibility around contributions, the investment choice is likely to be limited, compared to other personal pensions.

    For example, Standard Life’s stakeholder pension plan offers access to around 50 funds, but its active money personal pension offers access to more than 300. It also doesn’t offer fully-flexible withdrawals once savers are able to start taking money out (from age 55, rising to 57 in 2028), which is now a common feature of pension plans.

    Is a stakeholder pension right for you?

    When financial advisers recommend a pension, they are required to state why it is at least as suitable as a stakeholder pension. But while this rule caused a lot of money to be pumped into stakeholder pensions in the early days, that’s no longer the case. Savers should not assume that the moniker means that they are getting the best value.

    As Danny Cox, of Hargreaves Lansdown, points out, the pensions market has changed considerably over the last 20 years. He says: “Back in 2001 almost all private pensions were insurance companies offering personal pensions or stakeholder pensions through a financial adviser.

    “The private pension market is now dominated by DIY investment platforms, where savers benefit significantly from greater investment choice, better functionality, including app access, trading and no adviser fees.”



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