Stakeholder pension scheme
Stakeholder pension schemes were introduced in the UK on 6 April 2001 as a consequence of the Welfare Reform and Pensions Act 1999. They were intended to encourage more long-term saving for retirement, particularly among those on low to moderate earnings. They are required to meet a number of conditions set out in legislation, including a cap on charges, low minimum contributions, and flexibility in relation to stopping and starting contributions. Employers with five or more employees are required to provide access to a stakeholder pension scheme for their employees unless they offer a suitable alternative pension scheme. The features of stakeholder pensions were intended to make them cheaper to sell than existing personal pensions and to provide a more transparent and attractive saving vehicle.
Although many stakeholder pensions have been taken out, they have largely not been successful in encouraging lower earners to save more. The government announced in May 2006 that it proposed to introduce a new pension scheme called Personal Accounts, and later renamed NEST prior to its introduction.
Definition
As described on a nidirect.gov.uk website: "A stakeholder pension is a money purchase pension provided by a bank, building society or insurance company. Trade unions may also offer stakeholder pensions to their members. You pay money to your pension to build your pension fund. The pension provider invests the pension fund on your behalf. The value of your pension fund will be based on how much you have contributed and how well the fund's investments have performed. It is best to make regular contribution payments if you can. But you can stop payments for a while if you need to without it costing you anything. However, that will mean you have a smaller pension fund unless you make extra payments later. When you reach the age when the stakeholder pension can be paid, you can use the fund you have built up to buy an annuity. This is a regular income, payable for life, which you can buy from a life insurance company."