Your Money: Don't turn your back on pensions

Putting all your eggs in one basket will leave you horribly exposed if the property market collapses

Pensions - or the lack of them - should be a cause of dismay for the Government. The latest figures on stakeholder schemes, which were introduced in April 2001 as a low-cost way to encourage people to save for their retirement, prove they have been a flop.

Pensions - or the lack of them - should be a cause of dismay for the Government. The latest figures on stakeholder schemes, which were introduced in April 2001 as a low-cost way to encourage people to save for their retirement, prove they have been a flop.

Four out of five workplace schemes have yet to attract any money at all, according to figures released last week by the Association of British Insurers. Some 82 per cent of the 350,000 plans introduced by companies have received no contributions from either employer or staff.

Even the 1.5 million plans sold to individuals give little cause for excitement. Many of these haven't attracted new money: people have simply switched cash over from older, costlier pensions.

This lack of interest in stakeholder schemes is not altogether surprising when you consider the absence of incentives - such as compulsory employer contributions - for workers to invest their own money.

Part of the problem is that the pension industry as a whole has been tainted by mis-selling scandals and the collapse of Equitable Life.

Instead, consumers are turning to bricks and mortar. Figures from the Prudential show that some 40 per cent of people are relying on property to provide an income in retirement. As reported on the back page, equity release schemes have come in for a lot of criticism recently for being expensive and inflexible. Yet huge growth in equity release is inevitable.

The best bet is to spread your investments across savings, pensions and property. Mini cash individual savings accounts (ISAs) are the best place for cash, as returns are tax-free.

Pensions are certainly one of the best ways of saving for retirement. Because you have to buy an annuity once you reach the age of 75, your income for the rest of your life is guaranteed. The tax breaks are also considerable, with the Government topping up every 66p you contribute (or 78p for basic-rate taxpayers) to £1.

But pensions are inflexible by their very nature, as you can't get hold of your cash until you are 50. Property is fairly illiquid too but you can sell up pretty much when you want. Of course, what you get for your property depends on the market at that time. Your home also has to be sold at some point - either during your life or after you have died.

Putting all your eggs in one basket will leave you horribly exposed should the property market go into freefall or should you need cash that's tied up in your pension in an emergency.

Relying too heavily on one type of investment is never a good idea - particularly in retirement planning.

m.bien@independent.co.uk