Why don't we seize the chance of stakeholders?

Jasmine Birtles on the unloved but underrated pension plans
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The Independent Online

Only 15 per cent of the 500 staff at the Eden Project, Cornwall's tourist magnet, have so far taken up their employer's offer of a stakeholder pension.

Only 15 per cent of the 500 staff at the Eden Project, Cornwall's tourist magnet, have so far taken up their employer's offer of a stakeholder pension.

It's a generous deal, too: any employee prepared to pay 5 per cent of their salary into the scheme will trigger a 9 per cent contribution from the Eden Trust, the charity that runs the project.

Peter Cox, Eden's finance director, concedes it has been a disappointing take-up but is confident more employees will come forward in time.

"We put in up to 9 per cent because we simply want to encourage people to save for their future. It's part of our broader social aim," he says.

But his optimism is a beacon of light in a pall of stakeholder gloom. Recent research from the Department for Work and Pensions revealed 75 per cent of company stakeholder schemes were "empty shells", with no money from staff or employers.

In total, barely 1.5 million stakeholder pensions have been sold since their launch in April 2001 as part of a Government drive to encourage those on lower incomes, in particular, to save for their old age.

Blame for the poor take-up has focused, in turn, on pension providers' failure to offer greater financial incentives; employers' inability to encourage staff to invest; and the reluctance of most of us to save towards retirement. It is argued that unless the Government makes it compulsory to save for a pension, the majority of Britons will never put enough by.

Diane Buckley, director of corporate business at Legal & General, one of the life insurers providing stakeholder plans to companies, warns that apparently minor details, such as the timing of a staff meeting to explain the benefits of stakeholder schemes, can be crucial.

"Asking people to turn up outside office hours just won't work," she says. "Even with employer contributions of 5 to 8 per cent, you would get almost zero take-up."

Despite the lack of enthusiasm, stakeholder pensions have valuable benefits as vehicles for retirement savings. Pension managers can only charge you fees of up to 1 per cent of your pension fund each year. You can stop and start your payments whenever you like, take your stakeholder pension with you if you change your job, and switch it to a different provider whenever you want without penalty.

As with all pension plans, you get tax relief on your contributions. For each £1 you pay in, the Inland Revenue will add an extra 28p. Most people can contribute up to £2,808 in any tax year; income tax relief will increase this to £3,600.

If you are self-employed, you might be able to contribute more than £3,600 and still get income tax relief, depending on your age and earnings.

Not all employers take the enlightened approach of the Eden Project, however. Many don't contribute to their stakeholder schemes, and some refuse to accept a new employee's existing stakeholder plan, insisting they join theirs instead.

Any independent financial adviser (IFA) will help you to open a stakeholder or to decide whether to transfer an existing pension into one. Alternatively, you can do your own research and then apply direct or through a discount broker, which can offer you a rebate on commission.

The Financial Services Authority has a "decision tree" on its website (www.fsa.gov.uk) to help you decide whether a stakeholder is right for you. It also gives information on companies that offer stakeholders, with details of their charges.

But Gemma Watson, adviser at IFA Chartwell, says that as stakeholders are so new and because the charges companies are allowed to make are small, there is little to choose between the various products.

"It tends to come down to who you feel comfortable investing with," she says.

Norwich Union, Standard Life, Legal & General and Scottish Widows are among the most popular insurers with investors.


Until 2002, Marcus Watson had moved jobs just twice in 17 years. But, in the space of the past 18 months, he has had six.

His stakeholder pension, taken out with Virgin Money in 2001, has allowed him to carry on paying into a fund throughout his changes of employment.

"If I'd had different pension schemes and moved between companies, I would have been hammered [in charges]," says the married 37-year-old from Barnsley. "The stakeholder plan's flexibility is one of the reasons why I bought it: if you need to leave a company, it's one less thing to worry about."

Although he currently pays only a small amount into the pension plan each month (usually £25 to £50), he has already transferred a £28,000 lump sum from his former employer, Whitbread.

Currently working as an administrator for a haulage company, Mr Watson intends to pay around 5 per cent of his salary into his pension.

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