Is your scheme fit for your life?

When you are saving for 20 or 30 years it pays to pick a flexible investment plan. Simon Read explains.

Comparing personal pensions to gymnasts may seem incongruous but, oddly enough, it's fairly appropriate as analogies go. The best gymnasts are those who are most "bendy". I'm sure there's a proper term for their ability to throw their bodies into different kinds of alarming shapes but, whatever it is, the winners have it.

The same is true of personal pensions. Why? Because the key to success with personal pensions is flexibility. By its very nature, the personal pension is likely to be used by those who switch jobs often, work on contract, are employed by firms that don't offer a company pension or who are self- employed. All these people need flexible financial arrangements.

"Few people work for the same company forever anymore," points out Siobhan Mackey, of Clark Conway, a firm of independent financial advisers.

"You may have to take time off to raise a child, you might become self- employed or take some time out to go travelling. You might want to retire early or you may become ill and not be able to work and therefore you would make no contributions. These lifestyle changes will all have an effect on you and your pension planning."

Finding a flexible pension arrangement among the traditional pension suppliers can prove tricky. Most frown upon the notion of taking time off from your pension or of paying in irregular amounts at different times, and may penalise you for doing so.

On the other hand, direct pensions providers use flexibility as a major selling point. "We only charge pounds 2 per contribution rather than making a monthly charge as other do," says Gordon Maw of Virgin Direct. "So if you want to opt out while pregnant or miss payments at Christmas, for instance, you won't be incurring any charges."

Limited flexibility is available from traditional pension providers in terms of missing payments, but only at a cost. As Siobhan Mackey explains: "Some of the problems of lack of flexibility with traditional plans can be quashed by investing in low-cost waiver of premium, which protects your payments in the event that you are unable to work because of ill health."

For the greatest flexibility you should look for schemes that give you the choice of paying in monthly premiums, irregular amounts, or investing a larger lump sum once a year. In effect, you're looking for a scheme which allows you to contribute to your pension when you can afford to.

Many of the more modern schemes will nowadays allow you to take payment holidays and they are worth seeking out. For example, this means that if you are self-employed and have a particularly bad year, you can save on your pension contributions and use the cash to put back in the business, which can be crucial for those who experience cash-flow problems. Likewise, if you fall pregnant and want to go off and look after the child during pre-school years, you can do so without penalty.

"Charges can have a major effect on your fund," says Siobhan Mackey. "Get your adviser to explain the key features document which sets out charges. You will then be able to compare different pensions on the basis of their charges."

Of course, performance is the ultimate factor in determining whether your pension will be any good or not. Sadly, this is not something you can ever guarantee. But finding the right investment means being informed about the different opportunities available. There are high-risk and low- risk opportunities and it is possible to mix and match to get a good combination of both.

Do bear in mind that you could be investing for several decades. "The performance of different funds may not look like much year on year but it all adds up," says Siobhan Mackey. "Over the last 20 years, the difference between the best and worst performing funds has been double, if not more."

Keeping regular checks on your pension fund performance as you approach retirement is a sensible strategy. You'll find that you should get annual statements from your provider. These will give you an idea whether you need to increase your contributions, within the limits, to reach your pension target.

For most of us, pension planning is likely to be a 20 or 30-year business. Decisions made now may need to be revisited in five, 10 or 20 years time as circumstances and needs change.

CHOOSING THE RIGHT PENSION

The kind of pension you are looking for should allow you to:

n Stop and start your contributions without penalty

n Increase or decrease contributions without penalty

n Have a charging structure which does not penalise you in the early years

n Choose between different funds at will and with little or no penalty

n Switch to a lower-risk fund when close to retirement

n Have payments made for you when you are unable to work