Stakeholder pension vs personal pension

Discover the difference between a stakeholder pension vs a personal pension, plus the key features of both.

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Opening and contributing to a pension scheme is one of the best ways to save for retirement. If you have a workplace scheme then that’s often the best place to start as you’ll get free contributions from your employer. If you’re self-employed or looking for a separate pension, then it’s worth considering opening a stakeholder pension or a personal pension.

In this guide we explain some key details around the difference between stakeholder pension and personal pension schemes. We also take a look at common questions like “can I transfer from a stakeholder or personal pension?” and “what happens to my stakeholder pension when I retire?”.

What is a personal pension?

A personal pension is a scheme you set up directly with a pension provider. It’s a type of defined contribution pension where you build up a pension pot over time. You can use this pension pot when you retire to buy an annuity or draw down an income.

Personal pensions are great for self employed people or employees who want to build up their own pension. They are also available to people who are unemployed or not currently working.

Key features of a personal pension

  • You have a pension contract directly with the pension company
  • You make contributions directly from your bank account or from your workplace PAYE if it is a workplace group personal pension.
  • You can access pension savings from age 55. This is set to increase to 57 years old in 2028.
  • You’re allowed to take the first 25% of your pension tax free.
  • You can make gross contributions of £3,600 or 100% of your pay, whichever is higher, up to a maximum of £60,000 per year.
  • If your pension pot exceeds the lifetime allowance of £0, you’ll have to pay extra tax charges.
  • Your contributions are usually paid net of basic rate tax relief and tax relief of 20% is added later by HMRC.
  • You can choose from a variety of investment funds within your pension scheme.

What is a stakeholder pension?

A stakeholder pension is actually a type of personal pension scheme. It’s designed to be a simple type of pension scheme with low charges and a low level of minimum contribution.

It works a bit like other personal pensions, but the pension provider has extra rules they have to follow. Here are the key features of a stakeholder pension:

  • The pension provider will accept minimum contributions of as little as £20 per month.
  • Pension providers won’t charge more than 1.5% in fees for the first ten years and then 1% after that.
  • There are no penalties if you stop contributing or transfer the fund elsewhere.
  • There is a default investment fund if you don’t want to choose where to invest.

Do they both require the same contributions?

Stakeholders pensions have a minimum contribution level of £20 per month. Other personal pensions have a minimum contribution level that is set by the pension providers. Many personal pensions have a minimum contribution level of £50 to £80.

What are the different types of personal pension?

There are lots of different types of personal pension, including the following:

  • Standard personal pension – this is a defined contribution pension where you pay into a pension pot to save for retirement.
  • Self Invested Personal Pension (SIPP) – this is a popular type of pension scheme with an extremely wide range of investment funds. It can be a good choice for confident and experienced investors.
  • Group personal pension – some employers use a group personal pension as their workplace scheme. Although your employer also contributes to your pension pot, your contract is directly with the pension provider.
  • Stakeholder pension – this is a simple type of personal pension with capped fees. It allows you to contribute as little as £20 per month.

Can I transfer from a stakeholder or personal pension?

You can transfer your pension to another provider with a stakeholder or another type of personal pension.

Stakeholder providers must allow customers to transfer their pension for free. Other personal pension providers are allowed to charge fees for pension transfer, although they often also allow free transfers.

What happens to my stakeholder pension when I retire?

You can currently withdraw your pension savings any time after the age of 55. The minimum age when you can access your private pension is going up to 57 after April 2028.

You’ll be able to take the first 25% of your pension as a tax free lump sum. After the first 25%, you can choose whether to invest your pension pot in an annuity or draw down income gradually from your pension pot.

If you’re approaching retirement you can use the government pension service, Pension Wise, for free impartial pensions guidance. Or you can book an appointment with an independent financial advisor. They’ll look at all your circumstances and advise you on your pension options.

Why should I start saving into a pension scheme?

Zoe Stabler

Finder expert Zoe Stabler answers

It’s important to get saving as soon as possible into a pension scheme. That’s because long term investments tend to grow more and give higher returns than short term investments.

If you’re not sure where you start, then a stakeholder pension can be a great option. It’s a simple scheme with a low minimum contribution level, low fees and a default investment fund. You’ll also get free transfers if you change your mind about the best pension scheme in the future.

Pros and cons

Here are some of the pros and cons of a stakeholder pension.


  • Fees are limited to 1.5% of the fund value for the first 10 years and 1% after that.
  • Free pension transfers are guaranteed by the rules.
  • Simple option if you’re a new investor as you will be offered a default fund if you’re not sure where to invest.
  • You can contribute as little as £20 per month, making a stakeholder pension a great choice if you can’t afford to make bigger contributions.


  • Often have a limited range of fund choices. Most providers offer a choice of 30 to 40 funds.
  • Although fees are capped at 1% to 1.5% many other pension schemes actually offer lower fees of under 1%. That’s because the UK pension market is extremely competitive.

Bottom line

Stakeholder pensions are designed to be a simple and affordable type of pension scheme. You’ll be able to contribute as little as £20 per month and still receive tax relief on your contributions. You’ll also be entitled to free pension transfers and low management fees. You won’t have any penalties if you need to stop contributions and your savings will be invested in a default fund if you’re not sure where to invest.

Other personal pension schemes can also be a good option for if you want to have a greater choice of funds. It’s worth shopping around as there are many personal pensions with a wide choice and funds and low admin fees.

Finder survey: Do you currently have a private pension?

Source: Finder survey by Censuswide of 1032 Brits, December 2023

Frequently asked questions

Pensions are long-term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply. Keep in mind that the tax treatment of your pension and investments will depend on your individual circumstances and may change in the future. Capital at risk.
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Alice Guy is a Suffolk-based finance writer, a busy mum of 4 older kids and a self-confessed personal finance geek. She trained as a chartered accountant with KPMG London before working for Tesco Plc as a business analyst. She loves to write about budgeting, saving, investing and building wealth. See full bio

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