... Make sure I have a decent pension

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The Independent Online
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