To earn the name ‘stakeholder’ the products have to meet conditions designed to ensure that the products are straightforward and good value. What is good value?
Basically there are five stakeholder products:
- Stakeholder deposit;
- Stakeholder medium-term investment product (MTIP);
- Smoothed MTIP;
- Stakeholder pension;
- Child trust fund stakeholder account.
Stakeholder deposit, MTIP and smoothed MTIP are available in both ISA and non-ISA versions.
Stakeholder ISAs have now replaced CAT-standard ISAs, as from 6 April 2005. However, if you took out a CAT-standard ISA before that date, it will continue to meet the CAT standards. (‘CAT’ stands for fair Charges, easy Access and decent Terms)
Neither the stakeholder conditions nor the CAT standards guarantee the performance of the product. They do not mean that the government recommends that product or that the product is necessarily suitable for you. But they do provide a useful benchmark against which to compare other products.
The stakeholder conditions are as follows:
Cash ISAs: Stakeholder deposit account
- There are no charges to pay on stakeholder cash ISAs.
- The minimum deposit cannot be higher than £10.
- You can pay into the account in any of the following ways: cash, cheque, direct debit, standing order, BACS.
- You can make unlimited withdrawals.
- Withdrawals should be paid to you within seven days or less.
- The interest rate paid must be no less than 1% below the Bank of England base rate.
- If the Bank of England rate increases, the minimum interest rate must also increase within one month.
Stocks and shares ISAs: Stakeholder medium-term investment products (MTIP)
- Annual charge limited to 1.5% of the fund during the first ten years and 1% thereafter.
- The minimum deposit cannot be higher than £20.
- No more than 60% of the fund is invested in riskier assets such as shares.
- You can pay into the account in any of the following ways: cheque, direct debit, standing order, BACS.
- The prices at which units or shares in the fund are bought and sold must be the same, and the price should be published daily.
Extra terms apply to the smoothed MTIP:
- Some of the return in good years is paid into a ‘smoothing account’ to be used to top up the return in bad years.
- If the smoothing account needs extra capital, policyholders can be charged extra.
- Managers must make available information about their policies on smoothing and charging.
- The whole with-profits fund and the whole smoothing account, apart from specific deductions allowed by law, are supposed to be for the benefit of policyholders.
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