FOOL SCHOOL
Pensions: Stakeholders

June 12, 2002

If you've ever tried to get to grips with understanding pensions, it won't surprise you to learn that many of us consider them so complicated that we delay getting one, or don't bother at all. And because pensions are often very expensive, that means the pot at the end is not as big as it might have been. Stakeholder pensions have therefore been introduced to try to address three main problems:

• we don't understand pensions;
• we don't save enough for our old age, and; 
• even where we do save, we often get ripped off in the process.

So, ultimately, the Stakeholder Pension is a comparatively simple form of personal pension which has to meet the standards of what the Government thinks is fair value for money. It's a bit like the CAT standard that has been introduced for certain ISAs and mortgages, which limits the charges and conditions attached to any CAT-marked financial product.

The idea is that, while a stakeholder pension may not necessarily be the cheapest personal pension on the market at any given time, it should be a flexible product of reasonable value that is easily understood by the consumer. Pension managers are can only charge fees of up to 1% of your pension fund per year. There can be no up-front charges. You can stop and start your payments whenever you like over the years. You can take your stakeholder pension with you if you change your job, and you can switch it to a different provider whenever you want without penalty.

All this is good news. To quote from a recent report from the Financial Services Authority on the subject, stakeholder pensions "provide a signpost to a safe haven product" and that's probably a fair description.

More: Fool's Pension Centre