Stakeholder and Personal Pensions are Contract-based – while the plans are established under the name of the employer, the individual plans which make up the group arrangement belong to the employees.

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Group Stakeholder Pensions (GSP)

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If your business has 5 or more employees then it is a legal requirement to have, at the very least, a group stakeholder pension set up. They are low cost, flexible and secure schemes for people who do not already have access to a pension plan. The employer does not have to make contributions to this pension if an employee decides to join the scheme. The choice of investment funds is normally restricted within this type of pension plan due to its low charging structure. There is a duty on the employer to promote the Stakeholder scheme to its members of staff.

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Where an employer offers an occupational scheme, or a Group Personal Pension that meets minimum standards, then this will provide exemption from the need to offer a stakeholder plan.

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Group Personal Pensions (GPP)

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This is usually the pension scheme of choice for most employers who make contributions on behalf of their employees. Employees are usually required to contribute a certain proportion of their salary per month in order to secure the employer’s contribution. They usually offer a wide choice of funds for the individual to invest in.

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Many GPP’s have charges that are equal to or lower than Stakeholder plans but they do not benefit from the statutory maximum level of charges that apply to Stakeholders.

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Self Invested Personal Pension (SIPP)

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This is a type of personal pension which extends the range of investment choices to include all asset classes permitted by law. A SIPP may be individual, or part of a grouped arrangement. These schemes tend to be popular with high net worth individuals. SIPP plans allow the holder to make their own investment decisions whilst managing to sidestep both income and capital gains tax as SIPP plans benefit from the same tax relief as a standard private pension plan. The Inland Revenue has a full listing of what can be invested into a SIPP and currently these include unit and investment trusts, equities, cash deposits, shares and commercial property. The same lifetime allowance and yearly allowance rules as outlined in the pension simplification section still apply.

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As SIPPs are more complex arrangements, they tend to carry higher charges than other contract based pension schemes. As such, it is important to make sure that the increased investment options are required before effecting this type of plan.