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ISAs are still the best option for many people, but if you're getting excited about the prospect of making your children, or non-working partner, rich in their old age then hold your horses. The Stakeholder Pension won't be for sale until April next year!
Where Next?
It's already become clear that the Stakeholder Pension is going to be a pretty good tax dodge for those who've got money. It'll certainly be useful if you want to make sure your kids can take early retirement as you'll be able to pay into their pension fund from the moment they're born -- and get some of your tax back for them in the process. And then there's the prospect of avoiding Inheritance Tax, as any money you put into someone else's pension won't be included as part of your estate when you pop your clogs. Just think -- you can hand over some of your funds to the kids each year without having to live for seven years afterwards!
It appears these little benefits were missed when the Government was formulating a way of helping an estimated five million poorer people who do not qualify for current pension schemes. Actually, a cynical person might suggest that it's just another method of ensuring we don't end up as a burden on the State when we're whooping it up on our Zimmer frames at the Seaview Rest Home in Barton-on-Sea at the grand old age of 92! After all, we're already required to sell our homes to finance such a scenario because the State Pension has turned out to be barely enough to fund a meal for the grandchildren in a restaurant -- unless Granny opts for McDonalds.
So is the Stakeholder a Good Thing? Well, depending on your personal circumstances, yes, it probably is -- if your contributions are invested in a simple index tracker. It's a low-cost, flexible way of saving for your old age. The only thing we Fools don't like about it is that you're still required to use the majority of the fund on retirement to buy an annuity. And what you'll get in terms of an annuity is in the lap of the Gods.
As all Fools know, many pension schemes are a bit of a rip-off. Unless you're working for an employer who's contributing substantial sums of (FREE) money into a pension scheme for you, or you're a 40% tax payer, then an ISA is probably a better option.
However, the Stakeholder does have a few advantages if you're already using your ISA to fund other things such as an interest-only mortgage or to buy shares. It's particularly good if you're not earning because you're taking a career break to bring up children or you're a carer, for example. Before the Stakeholder you were only allowed to contribute to a pension scheme if you actually earned an income.
So let's look at a few of the Government decrees about how they will work: