What is a stakeholder pension?

Stakeholder pensions are second pensions in addition to the basic state pension that everyone gets.

The government introduced them because the basic state pension is unlikely to provide enough income for most people in their retirement.

They are intended as an alternative to personal pensions for those without access to company (occupational) pension schemes.

What happens to the money I pay into one?

Like other pension plans, the money paid into a stakeholder pension will be invested in items such as stocks and shares, bonds and cash savings accounts.

While there is some degree of risk involved in investing in stock markets, stakeholder pensions are designed to be low-risk products, offering those without company pension schemes a higher income in retirement than they might otherwise have.

http://news.bbc.co.uk/2/hi/business/1229475.stm


What is a money purchase scheme?

A ‘money purchase scheme’ provides benefits based upon the amount of money that is in YOUR own pension ‘pot’ when benefits are due to be paid.

The amount that will be in your ‘pot’ when benefits arise will depend upon the payments made into your ‘pot’; the investment return achieved on each individual payment to the pot; and any costs which are charged against your growing ‘pot’. The benefits you or your dependents will get from a money purchase scheme will come entirely from your ‘pot’.

Employer sponsored money purchase schemes include Contracted-Out Money Purchase Schemes (COMPS), Contracted-In Money Purchase Schemes (CIMPS), Executive Pension Plans (EPP) and Small Self Administered Schemes (SSAS).

Other types of money purchase schemes include Personal Pension Plans (PPP), Stakeholder Pensions (Stakeholder or SHP) and Group(ed) Personal Pension Plans (GPP). These arrangements may be presented as employer schemes but in fact are personal arrangements rather than employer sponsored schemes (even though your employer may pay into them on your behalf).

Two of these arrangements – GPP and Stakeholder - operate in a different way to the others. They are ‘contract based’ rather than ‘trust based’.

Money purchase arrangements are an effective method of controlling the cost of running a pension scheme. However, this does provide less certainty for the scheme member as to how much they, or their dependents, are likely to receive.
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Contract based schemes

The employer selects a provider – an investment company – who will administer the arrangement and set up individual contracts with each member. The contract is a regulated product which requires the provider to set up the contract and disclose information about the arrangement directly to the member. In all other respects, they are identical to ‘trust based’ schemes.

Employer selects investment company (pension provider).
The pension provider has an individual contract with each employee.
The pension provider is responsible for payment of benefits to each employee.
The employer has no responsibility for providing employees with benefits.

http://www.mycompanypension.co.uk/What-is-a-Money-Purchase-S...