• Our services
• Investor accounts and services
• Pensions – Stakeholder and SIPP
• Stakeholder
• Costs
• What can I invest in?
• Stakeholder FAQs
• Open account

Stakeholder FAQs

Frequently asked questions - Stakeholder Pension

What is a Pension?

A Stakeholder or Personal Pension is a way of investing for retirement and has some tax advantages. Most people can contribute to a pension whether in employment, a fixed-contract worker, self-employed, or even not working but able to afford the contributions. You can pay contributions regularly which are invested to build up your own pension fund. You can also make lump sum contributions whenever you like. When you take your benefits, you can use your pension fund to buy an "annuity". The annuity will pay you a regular income during your retirement. That income will depend on the size of your fund and the annuity rates at the time you take your pension income. When you take your pension income you can normally choose to have up to 25% of your fund as a tax free cash lump sum.

What is Pension Credit?

The Government introduced the Pension Credit, which replaced the Minimum Income Guarantee arrangements from October 2003. The idea of the Pension Credit is to make sure that all those who are aged 60 or over have a minimum income in retirement. Also that those with modest savings get some credit for having saved. These savings could be an occupational pension, a Stakeholder Pension or other Personal Pension.

What is a Stakeholder Pension?

Stakeholder Pensions were introduced by the Government in April 2001. Their purpose is to encourage more people to save for their retirement by offering a simple, low cost and flexible Personal Pension.

What are the tax benefits of a Stakeholder Pension?

Stakeholder pensions, like other pensions, are highly tax efficient. This means you will normally receive tax relief on the money you pay into your pension (called 'contributions'). So, for every £80* that you put into your Stakeholder Pension, HM Revenue & Customs will pay in an additional £20*, even if you don't pay tax at all. If you are a higher tax rate payer, you can claim any additional tax relief through your self-assessment form. Any growth in your Stakeholder Pension fund is free of UK income tax and capital gains tax. However, Legal & General cannot reclaim the tax paid on dividends from UK companies. The law and tax rates may change in the future and the value of tax relief will depend on your individual circumstances. *These figures are correct for tax year 2010/2011.

How much will you charge for managing my Stakeholder Pension?

Stakeholder Pensions are designed to be low cost and there are Government restrictions in place to ensure that this is the case. With Legal & General you will pay an annual management charge which is tiered according to the value of your fund. Find out more about Legal & General's Stakeholder Pension charges

How do I apply for a Stakeholder Pension?

You can apply for a Stakeholder Pension online. Before you do, you must read the Key Features Document  and the Investment Options Document. You should either store them on your PC or print them off for future reference. We also recommend that you read the Financial Services Authority's Decision Trees This is an interactive online service designed to help you make sure that a Stakeholder Pension is right for you.

How much can I pay in to my Stakeholder Pension?

Stakeholder Pensions are very flexible. You can pay in as little as £20 gross (including the tax relief paid by HM Revenue & Customs). You can pay in contributions on a regular basis or make occasional lump sum payments and you can also stop or start payments without penalty. If you chose to move your Stakeholder Pension you can do this without paying a penalty. You can contribute, and receive tax relief on, up to 100% of your earnings in a tax year, or £3,600 gross if that is greater. If total contributions paid by you or on your behalf exceed an amount known as the Annual Allowance (£50,000 in the 2011/2012 tax year) then HM Revenue & Customs will impose a tax charge of 40% on the excess contribution. However, contributions paid to a pension plan in the tax year in which you take all your benefits under the plan do not count towards the Annual Allowance. The law and tax rates may change in the future and the value of tax relief will depend on your individual circumstances.

What is the minimum I can put into a Stakeholder Pension?

The minimum contribution is £20 gross.

How can I work out how much to contribute to my Stakeholder Pension?

You can use our pension calculator to help you to work out how much you are likely to need to invest to try to achieve the income and lifestyle you want when you retire.

How will I know if I'm paying enough into my Stakeholder Pension?

Legal & General is obliged to send you an annual statement telling you what you have paid in and how your pension fund is growing. It is very important that you read this statement carefully as the value of the units which make up your fund can go down as well as up, so the value of your fund is not guaranteed. This becomes more important to remember if you are close to your chosen age of retirement.

What are the payment options for my Stakeholder Pension?

The payment options for a Stakeholder Pension are quite flexible. This means you can stop, start, increase or decrease, and pay in single contributions at any time without penalties.

Where can I invest my Stakeholder Pension?

You can choose from a wide range of pension investment funds with Legal & General which each have varying levels of risk and potential reward. Depending on how much risk you want to take you can invest in one or more pension investment funds - the more pension funds you chose to invest in, the smaller the risk may be. You can also switch your investment from one fund to another, currently free of charge, meaning you can easily change your Stakeholder Pension investment choices. There are over 20 Legal & General pension investment funds to choose between, ranging from index-tracking funds (which track the performance of a market or geographical region) to actively managed investment funds (where a fund manager decides what to invest in, in order to best achieve the fund's aims). Alternatively, there are 17 funds from a set of specially selected external fund managers. You can also choose to invest in a Lifestyle profile.

What is a Lifestyle Profile?

When setting up a Stakeholder Pension you have the option of choosing a Lifestyle Profile. This is where your contributions are initially invested in funds for the potential of long-term growth and then your investment is steadily switched into lower risk funds as you get nearer your chosen retirement age.

What are the potential investment risks of a Stakeholder Pension?

All investments carry an element of risk:

• You need to consider that the value of the units which make up your fund can go down as well as up, so the value of your fund is not guaranteed. This is especially important when you are close to your chosen age of retirement and want to take less risk on your pension fund.
• The amount of pension income provided by your pension fund will depend on a number of things, including investment returns and the rates available to buy your pension when you decide to take your benefits.
• The fund or funds you choose to invest in will have specific risks and you need to remember that the past performance of a pension product is not an indicator of its future performance.

How can I manage my Stakeholder Pension online?

You can manage your Stakeholder Pension online so that you can see how your pension investment fund is performing on a daily basis. You can also change funds, at no extra cost, but you will need to contact The Share Centre to instruct them.

How do I transfer a company pension to an individual Stakeholder Pension?

To decide if a transfer may be to your advantage, it is necessary to consider several factors such as charges, investment choices and any guarantees that may be lost. It is therefore strongly recommended that you get financial advice before transferring from another pension plan.

What are my options at retirement with a Stakeholder Pension?

When you reach your chosen retirement age you can normally take up to 25% as a tax free cash lump sum. The remaining money will be used to provide a retirement income, for example by buying an annuity.

Your retirement age must be between 55 and 75. The pension income from your Stakeholder pension will depend on a number of things which will include how much you contribute, charges, investment returns over the period your contributions are invested for, your age and the financial market conditions when you take your benefits. Remember your retirement income will be taxed as earned income.

How often will I receive a statement and valuation?

Statements are issued to you on the plan anniversary. They detail all account transactions made during the last year and a valuation.  Remember that you can view your Stakeholder Pension account online with The Share Centre.

What is contracting out?

Everybody who is working for an employer and who is earning above the lower earnings limit is automatically included in the State Second Pension unless they decide to contract out with a private pension. However, there are some exceptions such as married women who in the past decided to pay reduced rate National Insurance contributions and members of contracted out company pension schemes. The State Second Pension has now taken the place of the State Earnings Related Pension Scheme (SERPS). Leaving the State Second Pension is called "contracting out". You can contract out with a Stakeholder Pension but you give up your right to build up further State Second Pension for as long as you remain contracted out.

What happens when you contract out?

When contracting out with an individual Stakeholder Pension or Personal Pension Plan, the Government will rebate part of your National Insurance contributions paid by you and your employer into your private pension fund. The rebate is invested and you build up a replacement pension for the State Second Pension given up. The replacement pension you receive is not guaranteed, and could be less than the State Second Pension. However, contracting out offers more flexibility, for example taking a tax free cash lump sum and taking the benefits before State Pension Age. The rebate is designed to provide benefits at the same level as those you would have if you had remained in the State Second Pension, but depends on the Government Actuary's assumptions. Contracting out is an important decision and you need to consider carefully all the implications. You should speak to an independent financial adviser and you may have to pay for this help.

If you have any doubts as to whether a stakeholder pension is right for you, please seek independent financial advice

Investment carries a variety of risks

We understand that investing isn't right for everyone. It's well known that investments, their value and the income they provide can go down as well as up and you might not get back what you originally invested. Please remember that your money is tied up until you take your benefits, the law and tax rates may change in the future and the value of tax relief will depend on your individual circumstances. If you're not sure about the suitability of an investment please contact our Advice team.

01296 41 41 41