A group stakeholder pension scheme (GSHP) is a collection of stakeholder pension schemes
(SHPs) provided by an employer for its employees.
A SHP is a type of defined contribution
arrangement.
It is essentially an investment policy that provides an income
in retirement. It is available to any UK resident who is
under 75 years of age and can be bought from insurance companies,
high street banks, investment organisations and some retailers
(i.e. supermarkets and high street shops).
The policyholder contributes to the plan, the money is invested
and a fund is built up. The amount of pension payable when the
policyholder retires is dependent upon:
- the amount of money paid into the scheme;
- how well the investment funds perform; and
- the 'annuity rate' at the date of retirement. An annuity rate
is the factor used to convert the 'pot of money' into a
pension.
The policyholder can retire at any age between 55 and 75
(increasing to 77 from 6 April 2011 with transitional rules in place from 22 April
2010). When the policyholder does retire, they can generally
take up to 25% of the value of their fund as a tax-free lump sum.
The remainder of the fund can be used to buy an annuity with
an insurance company.
A SHP differs from a personal pension plan because it has been
designed to incorporate a set of minimum standards laid down by the
Government. These include:
- a charging structure that is capped at a maximum of 1.5% a year
for the first 10 years and 1% a year thereafter;
- there can be no penalties on altering or stopping contributions
or on transferring the benefits to another scheme; and
- providers may only refuse to accept contributions if they
are less than £20.
