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What is a stakeholder pension?

A stakeholder pension is a private pension - it's not a State pension. It must meet minimum standards laid down by the Government about charges, flexibility and the regular information you must be given. The standards are designed to help ensure that all stakeholder pensions give good basic value. There's more about this in the Further information section.

With a stakeholder pension, you can pay regular contributions, and you can also make lump-sum contributions whenever you like. Your employer can also make contributions. You will benefit from tax relief on your own contributions – there's more about the tax advantages in the tax relief section.

Your contributions are invested to build up your own pension fund. The amount of your fund when you come to retire is not guaranteed and depends on how much has been paid in, the type of investment fund you choose, how those investments perform, and the level of charges. A stakeholder pension scheme will usually offer you a range of investment funds, with differing degrees of investment risk and potential investment growth.

You do not need to retire to draw your stakeholder pension benefits. You can take benefits at any time from a certain minimum age. The minimum age is increasing from 50 to 55, and this will happen by April 2010 at the latest. The precise timing of this increase may vary between different stakeholder pension schemes. You will need to bear this in mind when deciding on your retirement plans. You can't withdraw any money from your pension fund before you reach the minimum retirement age.

When you take benefits, you can choose to take up to 25% (a quarter) of your pension fund as a tax-free lump sum. And you can use the rest of your pension fund (or all of it, if you decide against a tax free lump sum) to buy an "annuity". An annuity will pay you a regular income during your retirement. That income will depend on the size of your pension fund and annuity rates at the time you take your pension. You may have to pay tax on your annuity income.

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