About stakeholder pensionsAbout stakeholder pensions
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Stakeholder pensions defined
The legal requirements for stakeholder pensions are included in the ‘Welfare Reform and Pensions Act 1999’ and ‘The Stakeholder Pension Schemes Regulations 2000 - SI 1403’.
To qualify as a stakeholder pension, a pension scheme must satisfy a number of minimum conditions:
- it must be a defined contribution arrangement;
- management charges in each year must not amount to more than 1.5% of the total value of the fund and are taken from the fund;
- as well as the 1.5%, the law allows pension providers to recover costs and charges they have to pay for certain other things. For example, when they have to pay any stamp duty or other charges for buying and selling investments for the fund , or for particular circumstances such as the costs of sharing a pension when a couple divorce. These expenses are found in other pension schemes not just stakeholder pensions.
- any extra services and any extra charges not provided for by law must be optional. Extra services must be offered under a separate arrangement with clearly defined costs for the services being offered;
- the scheme must accept transfers in, and there must be no additional charge for transferring to a different stakeholder pension;
- the minimum contribution to a stakeholder pension cannot be set higher than £20 (schemes may set a lower minimum contribution if they wish). Contributions can be paid weekly, monthly (or at other intervals), or they can be a single one-off contribution;
- to look after the interests of their members, schemes must have either trustees or stakeholder managers;
- for trust-based schemes, a third of the trustees must be independent;
- schemes must appoint a scheme auditor or a reporting accountant to check the annual declaration made by the trustees or managers to ensure that the scheme complies with the charging regulations;
- schemes must have a statement of investment principles;
- schemes must have a default investment option which is subject to lifestyling (this means that during the years leading up to retirement a member's pension is gradually moved into less volatile investments, therefore providing greater security as they approach retirement).
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