7 simple facts on Personal and Stakeholder Pensions

Know the difference between personal and stakeholder pensions so you can choose wisely.

12:22 20 January 2013

There are two types of pension schemes that people in UK usually consider when they are thinking about building their retirement fund; personal and stakeholder pensions. If you’re not very familiar with these two, here are simple facts that should help enlighten you a bit.

7 simple facts on personal pensions

1.    Personal pensions are bought from high street banks, insurance companies, some retailers, and investment houses.

 

2.    Investors pay for investment into an insurance policy. The money is then invested on investor’s behalf. Investors have very little control on where the money will be invested.

 

3.    The benefits include a pension during retirement, which can start at age 55.

 

4.    The pension will allow investors to take out 25% tax-free lump sum.

 

5.     The pension can be payable to a widow, widower, civil partner, or other dependant/s.

 

6.    In case of death before retirement, a tax-free lump sum is payable to a widow, widower, civil partner, or other dependant/s.

 

7.    Personal pensions are subject to administration and start-up fees.

7 simple facts on Stakeholder Pensions

Stakeholder pensions were introduced to encourage more long-term saving for retirement. They were designed primarily for those people who have low to moderate earnings. Employers with at least 5 employees were required to provide access to stakeholder pension scheme for their employees. However, they have largely not been successful. This is the reason why the government proposed in 2006 a new pension called personal accounts. It’s more likely that this will take over the intended role of stakeholder pension schemes in the next years to come. Here are some facts you would want to know:

1.    There’s a charging structure capped for the first 10 years. It’s reduced a year thereafter.

 

2.    There are no penalties if investors take payment break.

 

3.    Minimum contribution should not be more than £20 in any period.

 

4.    Investors are given an option to take out 25% tax-free lump sum when they hit 55 years old.

 

5.    Retirement can be at anytime from age 55.

 

6.    This pension can be provided for a spouse/partner or children.

 

7.    Income can be provided via unsecured pension (income withdrawal) or secured pension (annuity) from age 75.