These days, to survive in old age you must invest

Half of Britain's population has still to make pension provisions, says Tom Tickell

P-p-p-pick up a pension may be the message from the government and the pensions industry, but only half the adult population has taken the advice. Pensions mis-selling has not helped. More than 400,000 people have accepted compensation for losing out when they were pressured into leaving company pension schemes for personal pensions. A further million cases are pending.

P-p-p-pick up a pension may be the message from the government and the pensions industry, but only half the adult population has taken the advice. Pensions mis-selling has not helped. More than 400,000 people have accepted compensation for losing out when they were pressured into leaving company pension schemes for personal pensions. A further million cases are pending.

Having a pension plan makes sense for everyone under 50. The rules allow you to pay in a larger share of your income as you get older, but starting really late can be worse than not starting at all.

"Assume you are 55, and have made no arrangements" says Penny O'Nions, the Amersham-based independent financial adviser. "Commission and insurers' expenses can take up much of the early contributions, and they have little time to grow. So saving through ISAs may be wiser."

Belonging to a company pension scheme is best of all for long stayers. Both you and the company contribute - and occasionally the employer pays all the premiums, as happens in the Civil Service. In a perfect world, the pension would be linked to final salary, though most depend on how successfully the money is invested.

AVCs, or Additional Voluntary Contributions act as a potential pensions booster, increasing your fund. Charges on a company's AVCs are always lower than those organised outside.

People leaving their jobs and company pension used to do badly. Now the funds have to raise the value of past contributions by the rate of inflation - up to a 5 per cent ceiling.

Personal pensions make sense for regular job-changers and the self-employed. They can take two forms. If you have a unit-linked pension, premiums go into a fund, where their value will move directly in line with the investments and other assets the fund holds. Most plans allow you to stop and start contributions as you want.

Ironically, the best time to contribute is when share prices are falling sharply, for you buy assets at bargain basement prices. But ultimately the fund's value will depend on investment conditions at the time you retire.

Unitised with-profits funds offer slightly more certainty. Insurers have annual bonuses, which add extra units to those you hold already. They rarely fall in value, if you retire at the expected date, though they may if you retire early. But there are no guarantees.

Stakeholder pensions come on stream in 2001, and will be different from those available now. "The only charge will be a 1 per cent levy a year" says Tom McFail of independent advisers Torquill Clark. "Most will be simple tracker funds, mirroring what happens to the FTSE or the All Share index."

How much pension your money will buy depends on annuity rates, though there is flexibility on when you must turn three-quarters of your lump sum into income for life. Today you now get 40 per cent less pension for the same money as you would have done five years ago, according to the Annuity Bureau. At least rates are just starting to rise.

Rising life expectancy will make it steadily more expensive to maintain the basic state pension's value. People need to invest to survive in old age.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea