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

Sport
footballLIVE City face Stoke, while Warnock returns to Palace dugout
Arts and Entertainment
books
Life and Style
3D printed bump keys can access almost any lock
gadgets + techSoftware needs photo of lock and not much more
News
i100
PROMOTED VIDEO
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100
News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Finacial products from our partners
Property search
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

    Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

    £35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

    DevOps Engineer (Systems Administration, Linux, Shell, Bash)

    £50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

    Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

    £60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

    Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

    £50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone