... Make sure I have a decent pension

The Value of the state pension is withering. By 2010, it is estimated that pensions will only be worth about 20 per cent of average earnings. That means sensible planning now is vital.

The first thing to remember about pensions is that the younger you are when you start, the better-off you will be on retirement. The second is that pension contributions qualify for tax relief, which means the amount you put away for your old age is in effect topped up by the Inland Revenue.

Have you got a pension? If you work for an employer which has an occupational scheme, you should be a member of it as this is the cheapest way of providing a pension. Make sure your contributions are up to date.

Occupational pension plans fall into two categories: final-salary and money-purchase schemes. At the moment, final salary is the most common. On retirement, employees receive a fraction of their final salary for each year they have worked for their employer. The maximum pension you can receive is two-thirds of your final salary. Most schemes work on a one sixtieth basis, which means you will have to be with your company for 40 years in order to receive the maximum pension of two-thirds of your final salary.

Increasingly, occupational plans are of the money-purchase kind. Typically, both you and your employer put money aside, which is invested to provide a pot of funds on your retirement. The value of your pension pot at retirement will be based on how well your investments have performed - not, as with a final-salary scheme, on how much you are earning when you reach retirement, or how long you have been in the scheme. When you retire, you will be able to take some of the money in your pot as a tax-free lump sum; the rest must be used to buy a retirement income known as an annuity.

Whether your employer operates a final-salary or a money- purchase scheme, you should find out how much pension income you can expect when you retire. Write to the trustees and ask for a forecast.

If you are a member of a money-purchase scheme, you should receive a statement each year setting out what your pension fund is worth, how the investments are performing and what size of annual pension you should be able to buy.

Such pension contributions alone may not provide enough for your retirement, so many schemes also allow you to make extra payments towards a bigger pension. These payments are known as additional voluntary contributions or AVCs. If your work scheme does not allow this, you can start a free- standing additional voluntary contributions (FSAVC) scheme with a separate insurer.

The alternative to an occupational pension is a personal pension plan which you can take from job to job.

A number of the firms which offer personal pensions have earned reputations as rogues by misleading thousands of people in to dumping their perfectly adequate company pension schemes in favour of inferior personal pensions - thus earning commissions worth thousands of pounds for the over-eager sales forces.

The insurance industry is still investigating this mis-selling, and where necessary paying compensation. But the operation is proceeding at a snail's pace, with only a fraction of the total number of cases dealt with so far. If you were in a company scheme but were persuaded to transfer to a personal pension, were you a victim of mis-selling? If you are in any doubt, make it a priority to check with your new pension provider or the independent financial adviser who arranged the pension.

That said, if you are self-employed or do not qualify for an employer's pension scheme, personal plans are designed particularly for you.

Personal pension annual contribution limit

Age Max % of salary

Under 35 17.5

36-45 20

46-50 25

51-55 30

56-60 35

61-74 40

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
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.

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