More about Stakeholders
These may be offered through some employers or you can start one yourself. Stakeholder pensions are private pensions which must have certain features.
A stakeholder pension is a pension that must have the following features:
- Charges are capped at 1.5% per year
- No entry or exit charges
- A minimum contribution of £20pcm
- A valuation sent out once a year
Eligibility
- They are available to anyone under the age of 75
- They must be a UK Resident
Employer Schemes
If you are in employment then you will probably be offered participation in a Group Stakeholder scheme. If your employer intends to contribute, this may well be the best option, but if not you should think hard before joining - you may be able to obtain better terms through an individual scheme and avoid complications if you change jobs.
Child Stakeholders
Using a stakeholder pension can be a cost effective way to make contributions on behalf of a child. Like all pensions, the benefits may not be drawn until age 55 (50 until 6 April 2010). However, with careful pension fund selection the child can benefit from a very long period of investment and realise the benefits of compound growth.
Compounding Pays
The benefit of compound growth when investing early is best indicated by the table below, which shows that a single contribution of £3,600 could generate a fund of £106,045 at age 50, assuming a standard growth rate of 7%.
Contributions may be made on the child's behalf by anyone, but, in many cases, the grandparents will be the most likely candidates. At age 18, when the child becomes an adult, the responsibility for pension contributions will pass to them as the pension holder.
How to Turn £2,880 into £3,600
Any UK resident (including children) can now contribute up to £2,880 each year into a personal pension and enjoy a basic rate tax rebate of £720, turning the contribution into £3,600. This is regardless of whether they pay tax or not.