Stakeholder Pensions

Jaqui Bamford of the Pensions Advisory Service answers your questions about stakeholder pensions.

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John Welch in Yeovil is 62 and his wife is 63. They're both retired. Is it worthwhile contributing to a stakeholder pension from savings for the next 10 years?

You can contribute up to £3,600 a year into a stakeholder, even if you've got no earnings.

You can also contribute up to the age of 75. So from that point of view, Mr and Mrs Welch could do this. What you have to consider is whether it's the right thing for an older person to do.

A small investment over a short period of time doesn't return much money, so it may not necessarily be that sensible for a pensioner to do this. They need to do a lot of research.

Mr Dunne wants to know if he could take out a stakeholder in his wife's name, pay the contributions and get tax relief at 40%.

If you take out a stakeholder pension for somebody else, you are actually putting the contract into that other person's name.

It's not your contract and you are not going to get the benefit of your tax position in terms of the contribution. Essentially, Mrs Dunne would have the contract and Mr Dunne would be paying her money to put into that contract. She gets the tax relief.

Can people who aren't working but have income open a stakeholder and how do they go about it?

You can, if you've got the money, put in up to £3,600 a year - that works out at about £2,800 on a net basis that you'd actually be putting in.

In terms of going about it, you've obviously not got an employer who's going to designate a scheme for you, so it's up to you to do your own research.

One of the best places to start is to have a look at the register operated by the Occupational Pensions Regulatory Authority to see what schemes are available.

If stakeholders have such low charges, asks Martin Youngman, are the companies going to be able to afford to pay for the best fund managers?

Most of the charges for pensions in the past have been on the marketing and sales side. It all depends on the size of the fund - the bigger it is, the easier it is to operate it at a relatively low fee. So we will see these being operated with active management.

Michael McFarlane's wife has a small personal pension with Equitable Life, which she might want to transfer elsewhere. Could she transfer the whole thing to a stakeholder pension as well as making her £3,600 contribution?

Yes, because the transfer value when you transfer in is outside your limit on contributions.

If you want to transfer a pension in, you've got to look at what you're getting on your transfer value. Some contracts, particularly older ones, may have penalties if you transfer. So you've got to look at what sort of money you've got, do your research and find out what would be available in your stakeholder before making a decision.

Mary Clarke is an employer with too few staff to offer stakeholder pensions. But if a new member of staff already has a stakeholder, does her business have to continue it?

Not necessarily. The rules depend on how many employees you have - just because you take on somebody with a stakeholder doesn't mean you have to designate a scheme.

If you've got five employees you have to designate a scheme, so if taking this new person on gets them up to five then they will have to do something.

John Rymmel asks if employers will also have to contribute to stakeholder schemes.

No, they don't. They have to designate a scheme and they have to provide salary deduction facilities and they have to discuss with their employees the particular scheme they are going to designate.

But they certainly don't have to contribute. And if the employer has a pension scheme where it is contributing at least 3% of the salary bill into it, then it is exempt from providing a stakeholder pension.

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The opinions expressed are Jaqui's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.

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