What is a stakeholder pension?

A stakeholder pension (SHP) is a defined contribution pension scheme designed to provide financial benefits for retirement – based on the following factors:

  • The amount of money paid into your pension over time.
  • The level of charges on your pension.
  • How long you’ve been paying into your pension for.
  • The level of investment and return on your pension pot.


Pensions are a long-term investment. The money you pay into a pension is invested and the value of investments and any income generated from them can go down as well as up and are not guaranteed. You may not get back the amount originally invested.

You should look to take advice or speak to someone before implementing any major changes to your finances or assets to mitigate the tax-burden.

How does a stakeholder pension work?

Stakeholder pension schemes provide a flexible way to contribute to your pension fund and save for retirement.
 

How much money can I put into a stakeholder pension?

A stakeholder pension plan is subject to a variety of tax benefits while you’re working – and once you retire. There is no limit on how many stakeholder pensions you can have.

However, there are limits on the amount you can contribute across your plans while still receiving tax relief.

While contributing to your pension pot, you’ll receive the following tax benefits:

  • Government tax relief on any contributions to your pension pot up to your annual allowance (£40,000 as of 2020/21).  
  • If you pay higher income tax (40% or more), you may be able to claim back the difference in tax through HMRC self-assessment. 

While you’re working

While you’re working and not making any withdrawals, your contributions will be invested to try and grow your retirement fund.

Anyone can invest in a stakeholder pension, whether they’re in salaried employment or self-employed.

To maximise your investments, there are limits on the charges that can be placed on your account.

When you retire

You can access the funds in your stakeholder pension from the age of 55, or from when you retire. With a stakeholder pension you can either withdraw:

  • Up to 25% as a tax-free lump sum.
  • The entire value of your pension pot – but remember you will be taxed on anything over the initial 25%.
  • Any amount of money as and when you need it.

Stakeholder Pensions: FAQs
 

Can you cash in a stakeholder pension early?

Most stakeholder pension schemes won’t allow you to withdraw your funds until you turn 55. However, you should be able to move your funds to another stakeholder pension provider.

Some pension plans will let you cash in your pension funds early, if you become seriously ill. 

Do stakeholder pensions offer a drawdown option?

Yes. Most stakeholder pensions will offer a drawdown option. Drawdown becomes available to you once you turn 55, and involves leaving your money invested in your pension pot to withdraw as and when you need it.

Is a stakeholder pension a defined contribution scheme?

Yes, a stakeholder pension is classed as a type of defined contribution scheme. They’re a flexible way to build your retirement savings and top up your state pension once you retire. 

Can I transfer my stakeholder pension into a SIPP?

Most schemes will allow you to transfer your funds into a self-invested personal pension (SIPP).  You can generally move your stakeholder pension at any time of year before you start drawing out your retirement benefits. 

Want to learn more about pensions?

Visit our pensions page and find out how expert advice could help you. 

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