These are a low-cost version of Personal Pensions. You can take one out if:

• You are employed (unless you are a member of a Company Pension scheme and earn £30,000 or more a year)
• Self-employed
• Unemployed

Or you can get someone else to contribute for you. This means non-earning wives, husbands and even children can have a Stakeholder Pension.

You can use your Stakeholder Pension to opt out - known as 'contracting out' - of the State Second Pension (S2P).This means any second pension income you get on top of your basic State Pension will come from your Stakeholder Pension, not the state. If you do, the government will pay in rebates to your Stakeholder Pension in exchange for you giving up an entitlement to S2P. However, review your decision regularly to make sure you are still better off opting out of the S2P.

How do they work?
Stakeholder Pensions are extremely flexible and have low charges. You can pay in as little as £20 a month and vary your contributions, often without penalty, whenever you like.

Under the present rules you can take the benefits from your pension plan any time between your 50th and 75th birthdays. From 2010, the minimum retirement age will rise to 55.

Pension contributions are entitled to tax relief. What this means is that the government adds on basic rate tax relief - so for every £78 you invest, the Inland Revenue tops this up with £22 to £100. If you are a higher rate tax payer, you'll need to claim higher rate tax relief yourself, topping up the tax relief from £22 to £40 for every £100 you invest.

When you decide to retire, your pension provider works out how much your fund is worth. You're then allowed to take up to 25 per cent of this value in cash - free of tax. The remaining 75 per cent of the value of the fund is used to give you an income each year for the rest of your life. To provide this income you must buy what is known as an annuity, by the time you are 75. You don't have to buy it from your pension provider, you can shop around to see if you can get a better deal.

Pros and cons of Stakeholder Pensions

Pros

• Low charges and flexibility
• The maximum you can be charged each year is one per cent of the value of your fund
• If you want to stop or restart your contributions, there should be no charges
• If you decide to move your money from your Stakeholder Pension plan - or transfer more money in - there should be no additional charge

Cons

• Low charges mean that providers may not be able to afford to give you free advice about the pensions they offer, and if they are right for you. You may have to see a Specialist Pensions Adviser or contact an Independent Financial Adviser if you do want advice
• There may be a limited investment choice

More information on Stakeholder Pensions:

• How much can I invest?
• How do you take out a Stakeholder Pension?
• What if I already have a Personal Pension?

How much can I invest?
The government has set limits on the amount you can put in. This is because you get tax relief on the amount you put into the plan and because there is no income tax or capital gains tax paid inside the fund that you invest in. As from April 2005 - if government proposals are turned into law - these restrictions will no longer apply.

The minimum amount you can invest each month is £20. Each year everyone - including non-earners - can invest up to £3,600 including tax relief. However, if you have sufficient earnings and are not a member of a Company Pension scheme you may be able to pay in more - a set percentage of your earnings - depending on your age.

How do you take out a Stakeholder Pension?

• You can usually approach the pension provider directly, you'll often find their adverts in newspapers or magazines
• You can apply to companies directly through the internet
• You can speak to a Specialist Pensions Adviser. You'll find details of your local ones in the Yellow Pages
• You can ask an Independent Financial Adviser. You'll find details of your local ones in the Yellow Pages (www.yell.co.uk), or by visiting www.unbiased.co.uk

If your employers do not run their own Company Pension and have five or more employees, then they must offer you a Stakeholder Pension.

What if I already have a Personal Pension?
If you have a Personal Pension, you can switch it to a Stakeholder Pension to take advantage of the lower charges. However, check first if you will be charged a penalty, if your investment choice will be restricted and what your current charges are. Many Personal Pension providers have brought their charges into line with those of Stakeholder Pensions so you may not be better off.