Making use of the new stakeholder pension

Stakeholder pensions were introduced in April 2001. Contribution limits are the same as for personal pensions. On retirement the fund must be used to buy an annuity but up to 25% can be taken as a tax-free lump sum.

In this case the Inland Revenue adds a tax rebate to your contributions equivalent to the standard rate of tax (i.e. in 2001 just over 28p for each £1) even if you pay no tax. Higher rate taxpayers can claim back the balance at the year end.

Annual charges will be capped at 1% of fund value, with no initial charges and no penalties for transferring the fund or suspending contributions.

Stakeholder pensions can be held alongside existing personal pensions or company schemes (but not where the employee earns more than £30,000 a year in the case of final-salary schemes). Contributions can be paid into an individual pension account (IPA) which is a 'wrapper' like an ISA and gives much greater control over how the money is invested.

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