Ask Sindie: How can I ensure that my pension makes the grade?

A teacher asks if she should step up payments into her occupational plan
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The Independent Online

Is it a good idea to increase my contributions to buy extra years in order to improve my pension prospects?

If not, are there any alternatives I could consider - and are these any better, and any safer? MH, East Yorkshire

As a member of the teachers' pension scheme, you are in a fortunate position. This is a final salary scheme, which means you will receive a guaranteed income on retirement.

Such plans - where the tax-free lump sum you receive depends on the number of years for which you are a member, as well as on the level of your final salary - are becoming hard to find.

"This type of scheme is attractive as there is no risk on your part," says Matt Brunwin from independent financial adviser (IFA) Bestinvest. " It's the employer who has to worry about investing the money to pay your pension." In other words, if the investment performance of the fund is poor, the you are not affected.

There is room for you to top up your pension, says Anna Bowes from IFA Chase de Vere. "It is certainly sensible to try to build up as much as possible for retirement."

There are a number of alternatives available, and one option you mention is "buying extra years of service" either through a one-off lump sum or by contributing an extra percentage of your salary over a set period. You can establish the cost of doing this using the calculator at www. teacherspensions.co.uk.

You should be aware that buying extra years is a more expensive option, as the income is guaranteed, says Ms Bowes. So you may want to consider cheaper alternatives although these involve some investment risk.

These options are: additional voluntary contributions (AVCs); freestanding additional voluntary contributions (FSAVCs), and stakeholder pensions.

AVCs for the teachers' scheme are offered solely through the Prudential, which has a range of investment funds.

"At retirement, the fund will be used to purchase an annuity to provide an income for life," says Ms Bowes. "But how much this will be depends on investment performance and annuity rates in the future."

With FSAVCs, you are not limited to one pension provider and so will have access to a wider range of what are potentially better-performing funds.

If you are earning less than £30,000 a year, you can put up to £3,600 (gross) into a stakeholder pension each year. With stakeholders, the charges are low - capped at 1.5 per cent.

Patrick Connolly at IFA John Scott & Partners points out that the pension rules are changing on 6 April next year so that you will be free to make additional contributions wherever you want. "The existing concurrency rules, which may limit the type of pension you can invest in, will disappear," he says. This will give you access to the full range of pensions on the market.

But he adds that even with a wider range of options, buying added years will give the most certainty.

However, the terms on offer in the public sector could be set for an overhaul as many final salary schemes are struggling to meet their liabilities.

"There is added pressure on public sector schemes to reduce their benefits and make them more affordable for the public purse," warns Mr Connolly.

This may involve changes, he says, such as members paying larger contributions, or final salary calculations being replaced by average earnings ones.

Earlier this month, for example, trade unions and the Government agreed a deal on the future of several public service pensions. It was decided that proposals to increase the retirement age from 60 to 65 would apply to those who begin work in the future - though not to current public sector staff.

Specific negotiations for the teachers' pension are due to begin early next month, and you can keep track of these at www. teacherspensions.co.uk.

Meanwhile, although pensions can offer big tax advantages, they can be inflexible. For example, you can't get hold of the money you have invested until you come to retire.

Contrast this, says Mr Connolly, with individual savings accounts (ISAs), where the tax benefits are limited by the size of your annual allowance but where there is far more flexibility.

"With mini stocks and shares ISAs, investments can be made in different asset classes - such as equities and fixed interest."

A logical strategy for you, adds Mr Connolly, might be to go for a mix of pension contributions and ISAs - buying added years to increase pension entitlements, and investing in both mini cash and mini stocks and shares ISAs.

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