There are generous limits on contributions to Stakeholder and Personal Pensions. The allowance for contributions to a Stakeholder and Personal Pension is limited up to £3,600 per year (£300 per month) without any reference to income or age. 

Above £3,600 the allowance is dependent upon the amount of earnings. The maximum that can be paid into a Pension Plan, including Stakeholder Plans, is capped at 100% of salary, or £225 000 per annum in the tax year 2007/08.  This cap is reviewed by the Government annually.  Tax relief is allowable on contributions to a pension from taxable earnings up to a maximum limit set at £225,000 for the tax year 2007/8.

There will also be an overall “lifetime allowance” on the total amount of money that can be saved in a pension and still benefit from tax relief. This is set at £1.6 million for tax year 2007/08 and also includes the value of old pensions from previous jobs.

If the maximum amounts are not fully utilised during any tax year it is no longer allowed to carry forward pension contribution allowances. . Prior to 5th April 2001 there were rules that would allow you to ‘carry forward’ any scope for pension contributions that had not fully used in any tax year.

The Government allows Income Tax relief on most pension contributions.  In the case of Stakeholder Pensions an immediate Income Tax relief entitlement at a rate of 22% is allowable on any contributions made.

As an example, for a monthly contribution of £78 an allowance of £22 tax relief is claimed by the Pension Company on behalf of the contributor, which is then added to the plan alongside the monthly payments made by the contributor and/or the contributor’s employer.  This means that the total monthly contribution amounts to £100.

Currently the Inland Revenue allow Higher Rate Tax payers who make pension contributions to claim up to 40% tax relief.  As only 22% is granted at source the balance must be claimed from the Inland Revenue.  The Pension Company or Tax Office will provide the required form to claim this extra tax relief.

There is no obligation on any employer to contribute to a Stakeholder Pension plan, although many employers do so as part of their overall staff benefits package. Employers may pay money into a Stakeholder pension plan alongside any contributions that you make.  The normal total contribution limits continue to apply, which means that if the total contributions exceed £3,600 per tax year the amount actually paid must be justified by reference to age and earnings.

In April 2006, as part of the changes made, it is now possible to make contributions to two different types of pension arrangement at the same time, within the limits given above.

Concurrent membership is making payments to a Stakeholder Pension at the same time that you are a member of your employer’s ‘company’ pension scheme.

Whilst you are allowed to a have as many Personal Pension or Stakeholder Pension plans as you want, the total contributions made must not exceed the normal contribution limits.  However, the situation is very different for members of an occupational pension scheme (Company Pension scheme) and who wish to make payments to a Stakeholder Pension as well.

Concurrent membership of an occupational pension scheme and a Stakeholder Pension plan is only allowed if:

Earnings are not more than £30,000 in a tax year

Or you are not a Controlling Director of a company.

Employed people can pay up to 15% of earnings as pension contribution to an occupational pension scheme whilst paying up to £3,600 into a Stakeholder Pension.

Under normal circumstances, assuming good health, benefits can be taken any time from age 50 to 75.  However with effect from 2010 the minimum age will increase to 55 for both males and females.  It is not necessary to stop working or reach state retirement age to be able to draw benefits from your Stakeholder Plan.

However, you may be able to draw benefits before age 50, increasing to 55 from 2010 if you are in poor health and are classified as unable to work  (please note: there are strict rules regarding ill health early retirement.  If you consider you could qualify for such early retirement you should seek advice from your pension provider).

There are some occupations where the Inland Revenue have agreed special retirement ages. These lower ages allow members of that profession to draw benefits earlier than age 50 increasing to 55 from 2010 regardless of their state of health. Examples of such lower ages are Professional Footballers, Deep Sea Divers and members of the Reserve Forces.

Stakeholder Pension benefits must be drawn on or before a 75th Birthday.

One quarter of the value of a pension fund may be taken as a lump sum payment which currently is tax free at the time you choose to draw your benefits.  The balance of the fund has to be taken as a pension, although that does not necessarily mean it is necessary to immediately buy an annuity.

If you die before your pension is drawn, the value of your Stakeholder Pension fund is normally returned to your next of kin.  The payment may be free of any Inheritance Tax, however, this is not guaranteed.  An indication of your preference as to whom you would like to receive the benefit in the event prior to withdrawal of your pension may be made by completing a Nomination Form or by placing your Stakeholder Pension plan in Trust.

There are a number of different Pension Companies who offer Stakeholder Pension plans; all of whom have to apply the same rules about contributions, benefit structures and maximum charges. However the amount charged, (within the maximum charge of 1.5% per annum) and the choice of investment funds available is a matter for each of them to decide upon.

It is important to seek advice before selecting your investment funds and deciding upon the best pension fund.  We shall be happy to assist you in helping to choose from so many different schemes and to offer advice on understanding the investment risks when deciding upon the right pension for you. If you need assistance then please contact us.

Check if your employer is setting up a stakeholder pension and, if so, which Pension Company is responsible for running that arrangement. It may be that this scheme might be suitable for your needs.

If you already have a personal pension or are part of an occupational pension scheme, check how much you or your employer will be allowed to contribute to a new Stakeholder pension plan.

You may wish to know how your contributions are to be invested, All Stakeholder Pension Plans offer a default investment fund but many offer a choice of funds where your money can be invested. If your Pension Company does offer an investment choice you should check that there are no extra charges for investing in a fund that is not the default investment fund.