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Stakeholder pensions and personal pensions

Stakeholder pensions are a low cost, flexible and secure option for people who haven’t set up a pension arrangement yet. The government introduced them in 2001 to encourage people to save for their retirement.

Should I take out stakeholder pension?
They are available to most employed people, as well as those who are not employed but can still afford to make contributions, such as fixed contract workers and those that are self-employed. It's also possible to contribute to someone else's stakeholder pension.

For example, if someone’s partner is at home bringing up children and isn’t working outside the home, then their partner can make contributions to their stakeholder scheme on their behalf, up to a maximum of £3,600 in the current tax year.

Stakeholder pensions are subject to the same tax regime as all registered pension schemes but in order to acquire stakeholder status, the scheme must meet minimum standards and be registered with The Pensions Regulator.

Minimum Standards
• It must have a simple transparent charging structure that’s limited to 1.5 % of the fund value for the first 10 years and 1% thereafter
• A minimum contribution of no more than £20
• Members can stop, start, and vary contributions without being penalised
• There must be no additional charges for transferring other pension funds into or out of stakeholder policies
• Each stakeholder scheme has to offer a clear default investment choice. So, if you’re not sure what investment fund to choose, the pension company will have provided a default fund for you to select. These are usually a managed fund which is made up of a number of funds that the pension provider runs in-house.

How much can I pay in?
Given the many tax advantages that are available when funding a stakeholder or personal pension, there are limits to the contributions that can be paid. You can make contributions of up to £3600 or 100% of your annual earnings, whichever is higher, to all of your pensions each tax year.
Your employer can make contributions to your plan as well, but if your combined contributions exceed the Annual Allowance you will be personally taxed on the excess at 40%.
It should be noted that the annual allowance is subject to change on an annual basis, and for more information you should contact a financial adviser.

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