Current stakeholder investors enjoy a pension that has no initial set up costs and features a low ongoing annual management charge that cannot exceed one per cent of the fund. Under new rules currently being drawn up this charge cap looks set increase to 1.5 per cent for new investors.

Stakeholder pensions were launched in 2001 as a New Labour answer to the massive pensions shortfall that the UK is facing but in reality the new schemes were simply a re-branding of the personal pensions that were introduced under the Tories in the late 80s.

The difference with stakeholders was that they had none of the myriad of charges that plagued older style pension plans and eligibility was far wider - investors don't even need to be earning a salary and so contractors on a low declared PAYE salary can invest as can non-working spouses and investments can even be made on behalf of children and grandchildren.

With stakeholder pensions, investments can be made via your limited company and you can alter your contributions, literally on a month by month basis, as your budget/contract changes without penalties or fees of any kind.

From 2005 pension providers are to be allowed to increase annual management charges to 1.5 per cent for new investors but interestingly existing plans will avoid these new rules.

Now is clearly the time for contractors to open a stakeholder plan, even if you can only pay a limited number of premiums. In this way the current advantageous terms are secured for any future investment that may be planned over the coming years. Over time the savings in admin charges could potentially be very substantial.

Tony Harris
ContractorFinancials

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