Video

Newsletters

Competitions

Quizzes

Offers

Social Network

Message Boards

Lifestyle detox
Replenish, refresh, revitalise

Holiday advice
Your questions answered

3D baby
Amazing images from the womb

Work & Money

Topics

Succeeding & Surviving

Finding a Job

Community

Computers and Internet

Money

Savings
Budgeting
Property
Family
Insurance
Debt

Hot stuff

Play celebrity baby match

Is debt affecting you?

Newsletters

Promotions

Stakeholder pensions

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