Stakeholder Information for Employees and the Self Employed

Q  What is a Stakeholder Pension? 
A
 Essentially it is a Personal Pension with the following main features:

  • The provider can only make an annual charge of no more than 1.5% of the fund. It can make no other charges.
  • The minimum contribution may be no higher than 20.00.
  • Contributions may be stopped, started or varied at any time without penalty.
  • No financial penalties on transfer.

Q  Is Stakeholder a State or Private Pension? 
A
  Private           

 

Q  Does my employer have to provide a Stakeholder Pension Plan? 
In most cases, yes. However you can choose not to join this plan and take out one on your own.

 

Q  Will my employer make a contribution to my plan? 
A
  Not necessarily. They are not obliged to do so.

 

Q  I am already in my employers pension plan, do I need to do anything? 
A
  Probably not, but you should check with your employer who will either already have exemption through the current plan/scheme in place or will have to introduce a Stakeholder plan.

 

Q  I have my own Personal Pension Plan should I do anything? 
A
  Not necessarily. You could ask advice on a switch to a Stakeholder Plan, which may be advantageous, but not always.

 

Q  What about tax relief? 

A  It is the same as with Personal Pensions - contributions by the employee are made after deducting basic rate tax.

This also applies to children and non-earners even though they are not taxpayers.

It also now applies to the Self-Employed who previously have always made pension contributions gross and then claimed tax relief through the tax return.


Q How much can I contribute to a Stakeholder Pension?

Up to 100% of your earnings. If your earnings are less than £3,600 a year (including zero) then a contribution up to that amount may be made.

e.g. 

   Earnings £50,000pa - max contribution £50,000
   Earnings £2,600pa - max contribution £3,600
   Earnings NIL - max contribution £3,600


Q  Is there an annual allowance cap?

A Yes, £50,000 (2012/13).

 

Q What about employer contributions?

The maximum of £50,000(£40,000 for 2014/15) includes employer and employee contributions. However, subject to HMRC approval, an employer can contribute up to the maximum regardless of an employees earnings. 

 

Q What is the maximum pension fund that I can build up? 

A The Lifetime Allowance(LTA) is £1.5 million (£1.25 million for 2014/15).

 

Q What if my fund gets beyond the LTA? 

A The benefits in excess of the LTA will be taxed at 55%.


Q How much tax free cash can I take?

A Up to 25% of the fund. The remainder must buy a pension.

 

Q What is the minimum age I can take my Stakeholder Pension?

Age 55. You may also continue working and take the benefits.

 

Q What happens if I die before retirement?

The pension fund - i.e. the contributions plus the growth plus any pension term assurance, up to the LTA will be paid tax free to your appointed beneficiary. Any excess over the LTA  will be taxed at 55%.

 

Q How many Stakeholder Pensions can I take out?

As many as you like so long as you don’t exceed the annual allowance each year.

 

Q If I am a member of an Occupational Pension Scheme can I also take out a Stakeholder Pension?

Yes, so long as the total contributions do not exceed the annual allowance.

 

Q How do I get Tax Relief

You make your contribution after deducting basic rate (currently 20%) tax.

e.g. gross contribution

£100.00

Amount you pay to pension provider

£80.00

The Stakeholder Pension provider then reclaims the difference between the gross contribution and the amount you pay – in this case £20 – from the Inland Revenue and adds it to your plan.

 

Q What about higher rate tax relief?

If you pay tax at 40% then you would reclaim the difference between 40% and basic rate of 20% i.e. 20%, from your local tax inspector who will adjust your tax coding to compensate you.

 

Q Can I keep my Stakeholder pension going if I am not earning?

Yes. Contributions up to £3600 gross pa may be made without any earnings .

This means that low and non earners will, regardless of their income be allowed to contribute up to this much.

 

Q How do I know how much my pension is worth?

A Your pension provider can supply you with this information at any time.

 

Q If I have a choice of investment funds, which should I take?

A It depends on your attitude to risk. If you have a moderate attitude to risk you may prefer the Managed Fund. For higher risks you can choose one or more of the international funds e.g. North America, Japan, Far East, Europe. 

If you have a more cautious attitude to risk or you are close to retirement a Cash Deposit Fund or Gilt Fund may suit. Where possible you should seek advice.

 

Q How much should I be paying into my Stakeholder Pension?

A As much as you can afford to achieve your desired retirement income! For a more precise figure try the Pension Calculator.

 

Q If I take out a Stakeholder Pension will it mean any state benefits are reduced? 

A No. State Pensions are currently not 'means tested'

 

Q I am a member of a Group Stakeholder Pension Plan – is this different to a Stakeholderl Pension Plan?

A No.  A group plan is still a Stakeholder Pension and has all the same rules as an individual plan.

The only difference is that contributions are (usually) also paid by the employer and, the employee contributions are deducted from pay by the employer and paid collectively for all employees to the provider. There may also be a difference in charges.

 

Q Why can’t I take all my pension in cash?

Because the object of pension is income. The government allows the valuable tax reliefs on pensions so that you become income self sufficient and not reliant on the state .  You may of course take a tax free cash sum as a part benefit.

 

Q Can I add life cover to my Stakeholder Pension?

A Yes, although the premium for the cover cannot exceed 10% of the pension contribution.

 

Q What is Carry Forward?

This is the term used to describe the making use of unused pension relief for the previous three tax years.

Q What if I cannot pay my Personal Pension contributions due to illness or injury?

A You can in many cases take out Premium Contribution Insurance as a seperate plan.

 

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