Should I go for stakeholder?

By THIS IS MONEY
Updated:

 

I AM 52, and married with a job plus £2,100 a year income from a previous company's pension. I cannot join my new employer's scheme until October 2001. I'd like to enhance my pension with my new employer but have read that it may be better to take out a stakeholder pension instead of paying AVCs. My salary and pension combined this financial year will be about £29,350. I understand you can take out a stakeholder if you earn less than £30,000 but does this just mean salary or is it your combined income?

If I am eligible for a stakeholder, how can you tell whether any one stakeholder is a good one or not? Also can you move from one provider to another? KP, Orpington.

Jon Minchin, independent financial adviser at Pensionline says: Stakeholder pensions are better than AVCs because you can take 25% of your fund as tax-free cash (with AVCs the whole fund must be used to buy an annuity).

The £30,000 rule applies only to salary and P11D benefits (eg, company car, health insurance, etc) paid by the employer providing the occupational pension scheme. Other sources of income are not taken into account.

There are also two little-known twists on the £30,000 rule: If you have earned £30,000 or less in the past five years you are eligible for a stakeholder; and if you earn money on a self-employed basis (even as little as £10 a year from say, trimming a neighbour's hedge) and put this income down on your tax return you are allowed to contribute up to £3,600 pa to a stakeholder.

You can move from one stakeholder to another. To compare stakeholder look at performance of the funds they invest in and the annual management charge. See the guide to stakeholders on this site.

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