Should you grab a stake?

Not that stake, Adam...

In recent years, the pensions emphasis has shifted sharply.

It's no longer about the state looking after you in your old age, but more about making your own provisions.

Yet despite the constant stream of advice, surprisingly few people have made plans for their retirement.

It might be that we don't have enough money to spare, or that because our employer doesn't offer a scheme, we haven't got round to sorting one out.

It's against this background that the government introduced stakeholder pensions in April 2001.

They are low-cost alternatives to company schemes, particularly aimed at those earning between £10,000 and £20,000 a year, although they are also suitable for people with a smaller income.

They are intended to be simple to understand and flexible.

The total annual management charge must not exceed 1% of the value of the fund - much less than many personal pension providers.

The pensions must be transferable. And you must be allowed to stop and start contributions or retire early without being penalised.

Who can take out a stakeholder pension?

The answer is pretty much everyone. You don't even have to be working - you can still contribute up to the age of 75.

You can take one out even if you're in a company scheme, as long as you're not a company director and earn less than £30,000 a year.

From October 2001, all companies with more than five employees will have to provide access to a stakeholder pension scheme unless they have their own scheme open to all employees.

Employers are not obliged to make a contribution to your fund, although some will.

You don't have to take out your pension through your company - you can do it privately if you wish.

All the usual High Street names will be selling them as well as bodies such as trade unions.

Each year you can invest £3,600 or a set percentage of your earnings depending on your age. That figure includes the tax relief you get from the Inland Revenue.

The minimum contribution is £20, and you can pay as irregularly as you like.

Your money is then invested like other pension plans, in stocks and shares, bonds and cash savings accounts.

While stock markets can be volatile, stakeholder pensions are designed to be low risk products.

I already have a pension

While stakeholder pensions are intended to be an addition to the basic state pension, they are also suitable for people who have some personal pension provision.

Stakeholder's benefits

Charges capped at 1%

No switching fees

Low minimum contribution

Available to almost everyone

For instance, teachers who stay in their jobs for a long while might have already reached the Inland Revenue pension limit. They can top up their funds by using a stakeholder pension.

If you already have a personal pension and your contributions don't exceed the stakeholder limit, you could look into paying it up and transferring it.

Bear in mind, however, that your current scheme might be performing perfectly well, could be cheaper to maintain than a stakeholder, and that there could be charges and penalties for moving.

One advantage of stakeholders is that the allowance can be added to the maximum 15% of your salary you can invest in a company pension.

While stakeholder pensions are undoubtedly very useful for many people, financial advisers caution against opting out of a company scheme.

That's because your employer might well make some contributions as well as offering other benefits.

Stakeholders won't be able to match that. If you have the chance of joining a company scheme, take it, say advisers.

Top up with a stakeholder

One group of people who might be interested in stakeholder pensions are those who want to top up their current pension with additional voluntary contributions (AVCs).

These can be used when you retire to buy an annuity, which will provide you with an income.

One advantage of stakeholders is that you can take 25% of your fund as a tax-free lump sum when you retire.

Your decision will probably depend on your own personal circumstances, so take advice.

Stakeholders are not the answer for everyone - it might be that your existing pension provisions are perfectly adequate. It could pay to ask an expert what they think before making a move.