What is your best course of action if you take out a personal pension and then stop paying the premiums? John Chapman finds some answers in the conclusion of a two-part analysis.

Hundreds of thousands of people take out personal pensions with good intentions then stop paying their premiums for a variety of reasons - perhaps because they lose their job, move to a company with an occupational pension scheme, start a family or have other priorities.

If you are one of these people, you have a problem. You will probably find most of the premiums you have paid in the first few years have been swallowed up by "front-end" charges and you will not get value for money from the pension plan.

So what do you do with the contributions you have made? You cannot cash them in. Your pension company should, however, tell you the transfer value and the paid-up value for your contributions.

The transfer value is the amount of cash it would allow you to transfer into another pension scheme or plan elsewhere. The paid-up value is the amount credited to you should you leave your funds within your plan. The paid-up value will then increase with the company's subsequent investment performance minus the annual management charges, which together would determine the eventual value of the policy when it matures.

If you stop contributing to your personal pension because you go to work for a company with an occupational pensions scheme, you could switch your transfer value into it. Whether that is actually sensible will depend on several factors, including the conditions of entry, effects of employer's contributions and the charges within the company scheme. These factors will require specific examination.

For many people, the choice will be between transferring to another pension plan or staying put. Most companies pitch their transfer values at the same levels as their paid-up values. A few will be substantial but many will be low. Whatever the size of the transfer values, what matters now are the likely returns should you keep your lump sum with the same plan or opt for a transfer. Those prospective returns will depend on a combination of the investment performance and the various charges imposed. No one can tell which company will perform best over the next 15 or 30 years, so charges must be the main basis for comparison.

Your transfer value lump sum can be invested as a single-premium pension plan in another company or even in your present company. You will want to choose a company with low charges. Making the standard assumption of 9 per cent a year investment growth, several companies, including Equitable Life, General Accident, Halifax, Legal & General, National Mutual, Norwich Union, Scottish Amicable and Scottish Widows, project growth net of charges of 8.1 per cent a year or more for single-premium plans over 25 or 30 years.

Should you transfer to such low charge plans? That depends on the projected growth of a paid-up plan with your present company. Until this month paid- up values were a grey area. But an initiative by Alan Lakey of Highclere Financial Services has achieved a breakthrough. His survey has enabled me to make the comparisons in the table. For example, Alliance & Leicester shows a transfer value and a paid-up value after two years both at pounds 4,862. The paid-up value would rise to pounds 40,708 at maturity, implying a growth rate of 7.9 per cent. If instead the transfer value was invested in a plan with projected growth of 8.1 per cent, the new maturity value would be pounds 43,046, an increase of 6 per cent. Like other increases obtainable from transfers from the companies in the first group, the prospective gain is not remarkable.

Transfers from companies in the second group suggest much larger rewards. An Allied Dunbar planholder would be offered a very disappointing pounds 1,645 after two years, rising to only pounds 7,348 if left to maturity after a growth of only 5.5 per cent a year. A transfer to a plan with 8.1 per cent growth would project a maturity value 98 per cent higher. Increases of about 50 per cent are indicated by transferring away from Eagle Star, Lincoln and Scottish Mutual, and increases of 20-30 per cent by transferring away from several other companies.

A third group of companies offers paid-up values greater than the transfer values. But do not be misled. Where there are striking differences there are also extraordinary charges on the paid-up values. The growth rates on J Rothschild, Skandia and Sun Life plans would only be 3 or 4 per cent a year. In nine out of the 14 cases the transfer route appears best. Indeed gains of 52 per cent and 74 per cent are indicated by taking the low transfer values of Skandia and Sun Life, rather than paid-up values as much as double the transfer values.

Differences in projected returns from transfer and paid-up values also arise at later stages of plans, but these are not so large as those arising in the very early stages.

What lies behind the differences - not only in the levels of transfer and paid-up values, but also in the charges on them? First, companies have very different expenses and their charges differ accordingly. Second, companies may prefer to load charges on to paid-up values because until now they have not attracted the interest of the regulators or the media. Third, some companies have deceptive charges called capital units and capital levies, which bear particularly hard on early paid-up values.

More light needs to thrown on the levels and treatment of paid-up values. It is astonishing that it has taken so long to recognise their importance. But at least the murky world of personal pensions is getting a bit clearer.