UK Stakeholder Pensions Disappoint

April 3, 2002 ( - The UK's stakeholder pension program, touted as the solution to the nation's savings shortfall, is failing to live up to the government's expectations, a study has shown.

The government had hoped that half of the UK’s five million low-income earners, who have no access to employer sponsored plans, would take advantage of the stakeholder pension plans, which charge lower management fees.
However, according to the Association of British Insurers (ABI), only £ 619 million flowed into the new plans by the end of 2001, nowhere close to the estimated savings shortfall of £27 billion per year.

The figures, gathered from the 47 of the 50 stakeholder plan providers, showed that around 750,000 people had bought a stakeholder pension by the end of February, and contributed £81 per month to the plan on average The minimum contribution is £20 a month and the maximum is £3,600 per annum.

These numbers are inflated by two factors:

  • retirement savers, who are transferring money from existing plans into stakeholder plans to take advantage of the lower fees
  • workers, who are contributing through an employer-based plan. Small businesses that don’t provide retirement plans to their employees must arrange stakeholder pensions for them.

About 320,000 employers were now making stakeholder pensions available to their staff, falling short of the government’s target of 350,000, according to the ABI.

The ABI also noted that while limited data was available on the income levels of stakeholder investors, the data that were available showed that most were earning between £10,000 and £30,000 per year. The government had aimed to attract those earning £9,000 and £18,000.

The stakeholder pension plan however, has not been a total disaster. After being introduced in a difficult year for investing, it has forced changes in the industry, placing downward pressure on management fees and forcing consolidation.

There is also the expectation that the government may make employers’ contributions to stakeholder plans compulsory.