Stakeholder pensions: a nice idea

Nobody wants to rely on the basic state pension in their old age -- not unless a pay rise of 75p sounds appealing. The lucky ones are able to save for their retirement through a company pension scheme.

Nobody wants to rely on the basic state pension in their old age -- not unless a pay rise of 75p sounds appealing. The lucky ones are able to save for their retirement through a company pension scheme.

Occupational pensions are attractive because most employers make a contribution to your fund, typically between 3 and 5 per cent of salary, excluding bonuses and employee benefits. You can top this up with further contributions of your own and receive tax relief at your marginal rate.

Many people in employment have no access to an occupational pension scheme. At present they must either set up a personal pension plan or go without. Stakeholder pensions are designed to help them.

Plans will be available from April 2001. There will be two types, personal stakeholders sold to individuals, and occupational stakeholders provided by employers.

Both types allow everyone to contribute up to £3,600 each year. The only people who cannot take out a stakeholder plan are those in a final salary occupational pension scheme or contributing to a retirement annuity contract.

You will receive tax relief on your contributions -- higher rate taxpayers at 40 per cent and basic rate taxpayers at 22 per cent.

Not every employer will have to offer an occupational stakeholder. Those already offering all staff aged 18 or over membership of an occupational pension scheme will be exempt. So will those offering all employees membership of a group personal pension plan, provided they contribute 3 per cent of salary and there are no exit charges.

Occupational pensions currently come in three main types. The most attractive is the final salary pension scheme.

"Anybody offered a final salary scheme by their employer should accept it, provided they plan to stay in their job for several years," says John Hutton-Attenborough, senior financial planning consultant at Berry, Birch & Noble.

Final salary schemes pay a proportion of your final pensionable salary, depending on length of service. Typically, for each year you receive one-sixtieth of that salary. If you stay with your employer 15 years you will receive 15/60s of salary -- or one quarter.

The second type of occupational pension is the money purchase scheme. These invest in the stock market, and their performance determines how much you get at retirement. Poor performance will hit your pension.

If you are a member of either scheme, it is unlikely stakeholder will affect you. If you are in the final type of occupational scheme, a group personal pension plan, stakeholder will only have an impact if your employer contributes less than 3 per cent of salary to the plan. In this case they must offer stakeholder access.

"More than 90 per cent of employers using our pension scheme contribute 3 per cent or above," says Stewart Ritchie, director of pensions development at Scottish Equitable. "If your employer makes this level of contribution it is a no-brainer -- join its pension scheme."

Occupational stakeholder is designed to force those companies who currently make no pension provision to get their act together. By October 2001 all employers with five or more staff must offer employees with more than three months' service access to a company stakeholder or one provided by an affinity group, such as a trade association or trade union.

That is the good news. The bad news is that companies are under no obligation to provide the most attractive benefit of a workplace pension -- employer contributions.

"Employers who decide to make contributions will probably set up a group personal pension plan. Those who don't want to contribute on behalf of staff will go for stakeholder. You will then have to ask yourself whether this is a good thing to get involved in," says Ritchie.

One thing you will not be able to do is approach your employer for advice. "It is a criminal offence to give advice if you are not authorised to do so under the Financial Services Act. This is a trap for employers -- it would be very dangerous for them to suggest a course of action," Ritchie says.

That could leave employees having to pay for their own advice, or to go without.

Kay Ingram, director of accountants Morison Stoneham, says the "decision tree" produced by the Financial Services Authority to help people make stakeholder choices will prove wholly inadequate.

She also fears that given the confusion, many will be tempted to delay a decision to start paying into their pension. "I would not advise anybody to wait until October 2001. Delaying could reduce your annual retirement income quite substantially."

Stakeholder was meant to be simple and encourage many more people to save for their retirement. Instead it has sewn confusion. The lucky ones are in a good occupational scheme. The rest must brace themselves for some difficult decisions.

"Don't do nothing. Go to a fee-based adviser and pay for advice about what you should personally do," says Ingram.

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

Life and Style
“What is it like being a girl?” was the question on the lips of one inquisitive Reddit user this week
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
beauty
PROMOTED VIDEO
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
transfers
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

Sport
German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
film
News
peopleMario Balotelli poses with 'shotgun' in controversial Instagram pic
News
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Sport
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Sport
Javier Mascherano of Argentina tackles Arjen Robben of the Netherlands as he attempts a shot
world cup 2014
Arts and Entertainment
The successful ITV drama Broadchurch starring David Tenant and Olivia Coleman came to an end tonight
tv
Sport
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
News
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
people
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
tech
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
tech
Finacial products from our partners
Property search
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

    BC2

    £50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

    Programme Support, Coms, Bristol, £300-350p/d

    £300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...

    (Junior) IT Systems Administrator / Infrastructure Analyst

    £28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...

    Finance Officer

    Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice