What are stakeholder pensions?
Stakeholder pensions are a type of defined contribution (DC) pension plan. Employers can use group stakeholder pension plans as workplace pension schemes, although it is important to note that they have largely been superseded by more modern types of pension scheme through the introduction of auto-enrolment, with many employers opting for master trust pension schemes.
What are the cost implications?
This type of pension scheme is cheap to set up, with one provider advertising a start-up fee of £16. The main cost to consider is the annual management charge, which is capped at 1.5% per year for the first 10 years, and 1% a year after that. Annual management charges may vary by provider; Aviva and Standard Life both say their charges will never exceed 1% per year.
Investment options in stakeholder pension schemes tend to be more limited. This makes them simpler for savers to manage although, on the flipside, this gives them a smaller range of funds to choose from. There will also be a default fund available, for savers who do not want to make any investment decisions.
Are there any tax or legal issues?
Employees who save in stakeholder pension plans will receive 20% tax relief on the money they put in.
If employers want to use their existing stakeholder pension scheme for auto-enrolment, they must check with their provider whether it meets the rules.
If an employer uses a stakeholder pension scheme for auto-enrolment, they need to follow all the usual rules for selecting an auto-enrolment pension scheme.
Employers should check the scheme is a tax-registered UK pension scheme which meets auto-enrolment requirements and will accept all their staff. Another important consideration is whether the scheme will work with their payroll software.
The Pensions Regulator gives a helpful overview of everything to consider on its website.
What are the current market trends or developments?
Stakeholder pension schemes have a reputation for being easy to set up and manage. They are also relatively low cost.
That said, these days, many employers are looking to workplace pension schemes which are specifically designed and marketed for auto-enrolment. These include master trusts like the National Employment Savings Trust (Nest), the People’s Pension or Smart Pension.
Many providers apply new thinking and innovations to all their products, including stakeholder pension schemes. Digital technology is making engaging with pension scheme savers much easier, more personalised and convenient.
Online tools and support will help savers to understand their finances throughout their lives, not just when they retire. Modelling tools and integration with open finance will allow people to see their money in the round, and plan for retirement. In the age of digital convenience, it is also much easier for savers to take care of their pension-related housekeeping: specifying or updating their nominated beneficiary, for example.
Employers can also benefit from access to ever-more sophisticated data analytics. For instance, Standard Life’s analytics will help employers to see what messages are resonating with their employees, slice data in different ways, analyse how pot sizes vary across different demographics, and more.
Investment evolves constantly, as providers adapt to changing global markets and develop new ideas. Accordingly, many providers are giving members of stakeholder pension schemes the option to switch into their current default funds, which is made easier by the advent of digital technology. Instead of sending back a form in the post, switching into a new fund is now possible online with many providers of stakeholder pensions. Many pension providers are also focusing on inclusivity, with some launching Shariah funds, for instance.
Who are the main providers and what types of schemes do they offer?
Major pension providers such as Standard Life, Aviva and Scottish Widows all offer stakeholder pension schemes. If considering using this type of pension scheme, employers should compare the annual management charges. Investment options will also vary from provider to provider. It is a good idea to look at the default funds on offer and compare their performance over time.
