Stakeholder pension

Stakeholder pensions are for people who do not have a pension scheme provided by their employer. Introduced by the government in 2001 in a bid to encourage more people to save for retirement, they allow people to pay money regularly into a fund which builds into a "pot" of money to be used when the holder retires.

One of the most attractive features of these pensions is that they are governed by strict rules which mean the pension manager cannot charge high fees. Charges are capped at one and a half per cent for the first ten years and one per cent thereafter. Stakeholder schemes only require a minimum of £20 a month in contributions and are therefore very accessible. They are also flexible as they allow the holder to stop making contributions at any time – for example if they are unemployed – and then re-start them again without penalty.

Stakeholder pensions also have tax incentives. The person holding the pension won't be receiving contributions from their employer but they will gain a little extra cash through tax relief. People paying into a pension scheme can receive tax relief on up to 100 per cent of their annual earnings. For every £79 put into the pension you will end up with £100.

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