Stakeholder Pension Transfer?
Is a Stakeholder Pension Transfer possible? is a question we are getting asked more and more. With pensions being at the height of current affairs, everything from a QROPS to a SIPP being discussed, it is important to define exactly what a Stakeholder pension is.
Stakeholder pensions are a type of defined contribution personal pension. They have flexible and low minimum contributions designed to help those who cannot afford to contribute large sums of money for retirement. Some employers offer one but you can start one yourself. You contribute money on a monthly basis which is invested and upon retirement, you receive payments back based upon how that investment has done.
All stakeholder pensions must fit the following minimum standards criteria;
- Limited charges – 1.5% per annum or below
- Low minimum contributions – from £20 per month
- Penalty-free transfer of your funds to a different pension plan of your choice
- A default investment fund – a fund for your money to be invested in should you not want to choose
- Ability to change contributions
The government will give you tax relief on your contributions, up to your annual allowance limit (£40,000 in 2017/18).
As you contribute your money is invested in stocks and shares and other investments – the key objective is to grow your hard earned cash leading up to retirement. There are normally an array of funds to be invested in and these investments can go both up and down. For more information on investing for your future speak to a qualified independent financial adviser
Phase 2 – The retirement phase
It used to be that upon retirement you can withdraw the money you have accumulated in your stakeholder pension. However, you can access these monies from age 55 whether retired or still working. With various options and combinations available to you, there are a number of factors to be considered when looking to do so.
Tax-efficiency on drawing down an income in retirement, how many other people are dependant on you are just a couple of these.
The amount you will get from your pension will depend on a number of different factors;
- How much did you contribute in total
- How long was each contribution invested
- Capital growth – how the investment of your contributions has done
- Cost of fees and charges
Key factors when considering transferring a stakeholder pension!
- Loss of guaranteed annuity rates (GARS) : There are potential extras within your current pension plan such as a generous annuity rate, which you could lose with a Stakeholder Pension Transfer.
- Investment performance: What is the historic performance of the new provider? Is it better, worse or the same as your current? How much choice is there? Stakeholder pensions rarely vary much in terms of what they offer so it really comes down to the performance the funds themselves.
- Charges: As previously mentioned all annual management charges (AMC)are capped at 1.5%. However, it is a possible that you are currently on a 1% AMC and the new provider is at 1.5%, so it is always worth checking.
- Retirement age: How soon are you looking to retire? If you are already in your early 60’s and planning to retire at 65, there is very little point in transferring. Mainly due to not enough time to gain an advantage on switching to a better performing fund.
So, should I transfer my stakeholder pension?
There are a number of factors to consider when considering a Stakeholder Pension Transfer, it is a not a decision that should be taken lightly and it is always worth speaking to a fully qualified independent financial adviser.
UK pension transfers is now a huge market with and with new legislation being brought out almost yearly getting the right advice is more important than ever. Talk to a Harrison Brook Financial Adviser to make sure you choose the most appropriate jurisdiction and provider for your needs.
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