Stakeholder pensions

What is a stakeholder pension?

Stakeholder pensions are usually personal pensions, although some employers offer them, too.

These pensions differ from other personal pensions because the charges are usually lower and they are more flexible.

How do stakeholder pensions work?

Stakeholder pensions have to meet minimum standards set by the government, which makes them different from personal pensions. These standards are:

Limited charges - they can't be more than 1.5% of the fund's value for the first ten years, and 1% after that

Low minimum contributions - the minimum can be as low as £20 per month

Flexible contributions - you must be able to stop and start payments when you want and switch providers free of charge

Security standards - such as independent trustees

How do I manage my stakeholder pension?

You can purchase a stakeholder pension from pension providers, insurers or high street banks.

The fund will be invested in stocks and shares, and unlike defined benefit pensions, you can choose from the range of funds to invest in.

Once you reach retirement age, you'll either use pension drawdown, buy an annuity or take the lot subject to taxation. Read more in our guide, options for cashing in your pension.

The amount you pay into your stakeholder pension can be as low as £20 per month, and you can pay monthly or weekly.

You don't even have to pay in regularly - you can contribute a lump sum whenever you want. There's also no limit to the amount you can pay in.

This flexibility can be particularly useful if you're self-employed, so you don't have the pressure of monthly payments.

How does tax work with a stakeholder pension?

The government will give you tax relief on your contributions, up to your annual allowance limit (£60,000 in 2024-25).

Personal contributions paid to a stakeholder pension scheme are made net of basic rate tax (20%).

People who pay income tax at the higher rate (40%) will be able to claim back the tax difference from HMRC at the end of the tax year through self assessment or by contacting HMRC.

Does my company offer stakeholder pensions?

Your employer can offer you a stakeholder pension, although since October 2012, they're not obligated to offer them.

Stakeholder pensions can also be used for auto-enrolment purposes - our guide to Auto-enrolment has more information.

Stakeholder managers or trustees monitor the contributions made by you and your employer, and you should receive regular updates on how much has been paid in and how the funds you're invested in are performing.