Pensions: a golden years guarantee

A Series of scandals and the appalling complexity of most pension plans do not help to put pensions top of many people's savings agendas. But the pension question is a must for those wanting a comfortable retirement.

Personal pensions are available to anyone who works who is not in a company pension scheme, not just the self-employed. Maximum contributions are restricted by age, starting at 17.5 per cent of annual earnings and increasing to 40 per cent for anyone over 61. Savings attract full tax relief of 23 per cent for basic rate taxpayers and 40 per cent for those paying higher-rate tax. At retirement, up to 25 per cent of the fund can be taken as tax-free cash, the remainder buying an annuity that provides an income for life.

Despite their generous tax breaks, pensions are often criticised as being inflexible. Benefits cannot be taken until a specified age, which in the case of personal pensions must be more than 50 at the earliest.

Gareth Sawyer, director of Sydney Packett Life & Pensions, a Bradford- based independent financial adviser (IFA), says that a mix of pension and non-pension savings vehicles makes sense when planning ahead for retirement. However, he warns that the future of personal equity plans (PEPs) is uncertain as the government has announced its intention to introduce an Individual Savings Account (ISA) that will replace PEPs in 1999. Harry Kerr, of Merchant Investors Assurance, advises on what to look out for in a personal pension: charges, which should be low and easily understood, contribution flexibility allowing the saver to be able to stop and start contributions without penalty, investment performance and the security of the company from whom you are buying.