L&G delivers a pep-up for stakeholder

The financial services group, Legal and General, has given the Government an anniversary present for the first birthday of its stakeholder pension - a four-point plan in which both Government and employers can contribute to employees' funds. William Kay reports

Stakeholder pensions are one year old today – but their future is still mired in controversy. While the Government maintains they are happy with the way it has gone, there is growing criticism that the stakeholder is missing its target market, accompanied by calls for the scheme to be made more attractive in the way Peps and Isas were in their early years.

Money net
pension
searches

Stakeholder pensions are one year old today – but their future is still mired in controversy. While the Government maintains they are happy with the way it has gone, there is growing criticism that the stakeholder is missing its target market, accompanied by calls for the scheme to be made more attractive in the way Peps and Isas were in their early years.

After lengthy consultation and much tinkering, stakeholder pensions were introduced last April by Alistair Darling, the Secretary of State for Work and Pensions. It is a savings scheme designed for retirement that can be either occupational or personal as long as it is certified as fulfilling minimum standards laid down by law, and is provided or managed by an approved firm.

Charges are limited to 1 per cent of the value of the holder's fund each year. Advisers can charge extra for advice. Firms employing five or more people must offer a stakeholder scheme, and 320,000 out of 350,000 have – but they do not have to contribute. You can contribute up to £3,600 a year, for which you will receive tax relief up to a maximum of £792. You can contribute regularly or occasionally, without penalty. The provider can insist on a minimum contribution, but that must not be more than £20 a month. In practice, at least £100 a month is advisable. The later you start, the more you have to chip in to catch up. You can invest more than £3,600 a year, but the extra is subject to normal pension rules.

Stakeholder was intended to bridge the pensions gap for people who might not otherwise have enough to retire on. The target income group for stakeholders, said Mr Darling, was £10,000 to £20,000. For the past year the Government has been dogged by criticism that it has been too much of a savings tax loophole for the better-off, putting money in the names of their spouse or children.

But a report on the new scheme published by the ABI this week tends to support that only partially. It found that over 750,000 people have bought a stakeholder pension, 97 per cent by or for people of working age. Only 2 per cent were bought for children, and 1 per cent by the over-65s. The bulk have been bought to make regular contributions, with an average so far of a still too-low £81 a month. Where stakeholder pensions have been arranged through an employer, 70 per cent of policyholders earn between £10,000 and £30,000 a year. Of stakeholder pensions that have been bought individually (ie not through an employer), 43 per cent of policyholders earn between £10,000 and £30,000 a year. But, backing the tax-loophole criticism, of that 43 per cent a quarter have no earnings.

Many critics were not mollified. Alan Steel, an independent financial adviser (IFA) in Linlithgow, Stirlingshire, said: "It's really a disgrace. It's sitting on top of what's already a mess of phenomenal changes, and the public is thoroughly confused."

That is borne out by a NOP Omnibus survey for the adviser lobbying group IFA Promotion. It found that 15 million UK adults have still never heard of stakeholder pensions, including more than half of the poorest social groups. Despite, or maybe because of, a government awareness campaign, 57 per cent of adults find pensions confusing, compared with 42 per cent a year ago. Over 13 million people have made no pension provision, relying totally on the state basic and second pension which together should provide about £7,000 a year depending on earnings and national insurance contributions.

Inevitably, proposals for improving stakeholder are flying thick and fast. Mr Steel advises the Government to scrap 90 per cent of present pensions legislation and start again with a clean sheet.

Ian Lowes, technical director of Lowes Financial Management in Newcastle, said: "I am convinced that compulsory contributions will be required to be made to these plans before the end of the current Parliament. It will be a matter of time until those of us who have been forced to contribute find that our basic state pension is gradually reduced. This ultimately amounts to nothing more than the privatisation of state pension provision."

The Association of British Insurers (ABI) wants more incentives to encourage greater pensions saving with compulsion "if necessary". It would also like to see employers more involved in helping people to save, by inviting financial advisers into factories and offices, and encouraging more employers to contribute to employees' pensions. It also advocates reforming the current pensions framework so that it is simpler to administer and easier to understand.

This week Legal & General, the pension provider, announced a four-point plan to boost stakeholder:

* For two years, government should match the first £100 per month saved in a stakeholder pension with a further £50.

* Encourage employers to match contributions from employees at 50p in the £1.

* Employers to recommend stakeholder pension schemes to staff without fear of repercussions under the Financial Services Act, as at present.

* Financial Advisers should be subject to lighter regulation when advising on Stakeholder.

L&G says the £50 top-up will not cost public money as there have been large savings on pension tax relief due to the low charges pension providers are allowed to levy on stakeholder.

A baker ups his pension stakes

People in Kilmarnock, 20 miles south of Glasgow, would not be able to butter their baps on the breakfast table or their scones at tea time without the help of Jim MacDonald, because he is up at dawn to drive a delivery van for Ferguson's, one of the town's main bakers.

Stakeholder pensions could not have been better timed for Mr MacDonald, 37, because his previous employer ­ a crisps and sweets wholesaler ­ had gone bust and he was acutely conscious that he had no easy way of keeping up his pension contributions.

Mr MacDonald has three other pensions from employers which have shut down over the years.

After stakeholder was launched a year ago he contacted Legal & General (L&G), the financial services provider, and signed up last May to invest £50 a month plus tax relief.

"This way, it doesn't matter who I am working for, I can just take it with me and either stop paying for a while or still keep my contributions going," said Mr MacDonald, who lives in Irvine, Ayrshire, with his wife Elaine and children Ami, 13, and Greig, 10.

Meanwhile L&G has devised a four-point plan to boost the stakeholder, with matching contributions from the Government and employers.

Independent Partners: 10 top tips for retirement. Get your free guide here

Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Pricing Analyst

    £30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

    £21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

    Ashdown Group: Head of Client Services - City of London, Old Street

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

    Why Mohammed Emwazi chose Isis

    His friends were betrayed and killed by al-Shabaab
    'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

    Open letter to David Cameron

    Building the walls of fortress Europe has had deadly results
    Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

    You don't say!

    Tory candidates' election tweets not as 'spontaneous' as they appear
    Mubi: Netflix for people who want to stop just watching trash

    So what is Mubi?

    Netflix for people who want to stop just watching trash all the time
    The impossible job: how to follow Kevin Spacey?

    The hardest job in theatre?

    How to follow Kevin Spacey
    Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

    Armenian genocide and the 'good Turks'

    To continue to deny the truth of this mass human cruelty is close to a criminal lie
    Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

    'Lou needed care, but what he got was ECT'

    The truth about the singer's upbringing beyond
    Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

    This human tragedy has been brewing for years

    EU states can't say they were not warned
    Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

    Women's sportswear

    From tackling a marathon to a jog in the park, the right kit can help
    Hillary Clinton's outfits will be as important as her policies in her presidential bid

    Clinton's clothes

    Like it or not, her outfits will be as important as her policies
    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders