Investment Types - Stakeholder Pensions
Stakeholder Pensions
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Stakeholder pensions

Stakeholder pensions were designed as a cheap and easy-to-use version of the personal pension used to save for retirement.  They were introduced in 2001 in response to concerns about traditional plans levying high charges and fees, which as with any investment can seriously damage your returns.  As pension saving is so long-term, the rolling effect of charges can make a dramatic impact on your pension pot, and be harder to spot as well. 

Many providers now offer stakeholder plans for children, aimed at parents and grandparents who are looking for a way of creating a long-term nest egg for young people.  The advantages are that the management charge is limited to 1%, and you can put away up to £3,600 a year for the child and qualify for the tax bonus on pension saving meaning it actually costs you .....  So for every £100 a month saved, the government is adding another £20.  While it’s a very tax-efficient way to save and invest for children, remember the child will not be able to access this fund until he or she is at least 55 (under present rules). The child can then start drawing down the savings but will eventually have to buy a retirement income in the form of an annuity.     

Typically, you will be able to invest from as little as £20 a month, and be allowed to start, increase or decrease regular contributions, and pay in single contributions at any time, without a penalty.  You ought to have a choice of funds on offer from most providers, and you may even be able to manage the plan online so that you can see how the child’s pension fund is performing.

Many providers offer ‘ethical’ versions of their stakeholder plans, enabling the adult to choose socially responsible investing on behalf of the child.

 But remember that even a 1% annual charge, though low, is not necessarily the cheapest way to access long-term investments, if you are not convinced that a pension is the right way to invest for a child.  If you would be happy to build up a lump sum which they could access earlier in their lives, a low-cost investment plan would be an alternative. It attracts no tax bonus, but it does provide access and flexibility.

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