Stakeholder pension scheme

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Stakeholder pension schemes were introduced in the UK on 6 April 2001 as a consequence of the Welfare Reform and Pensions Act 1999. They were intended to encourage more long-term saving for retirement, particularly among those on low to moderate earnings. They are required to meet a number of conditions set out in legislation, including a cap on charges, low minimum contributions, and flexibility in relation to stopping and starting contributions. Employers with five or more employees are required to provide access to a stakeholder pension scheme for their employees unless they offer a suitable alternative pension scheme. The features of stakeholder pensions were intended to make them cheaper to sell than existing personal pensions and to provide a more transparent and attractive saving vehicle.

Although many stakeholder pensions have been taken out, they have largely not been successful in encouraging lower earners to save more. The government announced in May 2006 that it proposed to introduce a new pension scheme called Personal Accounts. It seems likely that Personal Accounts will take over the intended role of stakeholder pension schemes.


All stakeholder pension schemes must be registered with The Pensions Regulator.

Like personal pension schemes, stakeholder pensions must provide an income in retirement using a minimum of 75% of the fund. Up to 25% of the fund can be taken as a tax free lump sum.

Originally the maximum annual charge was 1.0% of the fund value each year. Since 2005 this has increased to 1.5% of the fund value for each year until the 10th year and 1% thereafter.

There can be no penalty on exit or entrance to the scheme, and the minimum contribution is £20 per month. However, payments can be stopped at any time and a single contribution of £20 is enough to open a plan.

Benefits can be taken from age 55 and as of 6 April 2012, there are no longer financial penalties associated with taking your Stakeholder Pension over the age of 75.[citation needed]

Income can be provided via a secured pension (annuity), unsecured pension (income withdrawal/drawdown) or from age 75 an alternatively secured pension.

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