Teachers may soon reap the benefits from the new stakeholder scheme, reports Susannah Kirkman
THE pensions of three-quarters of teachers could soon be boosted by a new stakeholder pension, a low-cost way of topping up retirement benefits.
The teaching unions are optimistic that they will reach agreement with local education authorities over the new arrangements, which should be in place by early April, according to Barry Fawcett, the secretary of the Teachers' Panel on Pensions.
The stakeholder scheme was originally intended by the Government to provide for people on low incomes who did not have an occupational pension. But it can now also be used by those earning under pound;30,000 a year in order to increase their pensions.
Under these rules, most teachers would be eligible to join the stakeholder scheme. Teachers in independent schools which are not members of the Teachers' Pension Scheme could also benefit, as the new rules say that any organisation with more than five employees must offer a stakeholder pension if they do not have an occupational scheme.
Barry Fawcett predicts that many teachers will favour a stakeholder pension over the Additional Voluntary Contributions (AVC) scheme to which many already contribute.
The stakeholder system has tax advantages and low management charges - around 0.85 per cent, Barry Fawcett reckons, copared with 1 per cent for AVCs. Contributions to stakeholder pensions are tax-free and employees can pay in up to pound;3,600 per annum higher than the limit imposed on AVCs, which is 9 per cent of earnings.
Instead of using all the money to buy an annuity, people with stakeholder pensions will also be able to take 25 per cent of the final amount as a tax-free lump sum.
But there are fears that employees make mistakes over their pensions if they don't get proper advice. "The biggest problem is that people may buy into the wrong scheme, and we could face a pensions mis-buying scandal like the pensions mis-selling fiasco of the past decade," says Simon Miller of Pensions Weekly.
The unions are pushing for a teachers' stakeholder pension, which will be part of an existing stakeholder scheme set up by the TUC. This is overseen by trustees and organised by the Prudential, and the unions can keep a close eye on the new pension. "We don't want some teachers finding out in 20 years' time that they would have been better off with AVCs," says Susan Johnson, head of pensions at the Association of Teachers and Lecturers.
In the meantime, Simon Miller says teachers should seek advice from an independent financial adviser.
A government-sponsored helpline (Tel: 0845 6012923) will explain stakeholder pensions. All calls are charged at local rates.