Money: Tax-Free Savings - You still can't beat a pension

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Putting money aside for your pension represents the most tax- effective savings opportunity you will probably ever have. There is no other savings vehicle where the government or your firm contributes money to your own individual pot.

"Every individual without a pension should ask themselves why they have decided not to let the government give them free money," says Alastair Conway, managing director of Clark Conway, a firm of independent financial advisers in Wimbledon.

However, pension planning is a complicated process. So you need to be as informed as possible. If you are already in a company scheme, talk to the scheme manager about whether and how you make extra payments towards your pension, known as additional voluntary contributions (AVCs), to make up for any missing years. However, if you want you can make these extra payments into an outside pension company through a slightly more expensive free-standing AVC. Professional advice will help guide you through this maze.

If you are not in a company scheme, then find out if you are eligible to join one. If so, it is a good idea to join. "People must make sure that they take advantage and understand the benefits their employer provides," says Mr Conway.

If your employer does not have a pension scheme, if you are self-employed, or if you are one of the increasing number of people who works on contract and so is not eligible to join a company scheme, you should think of setting up a personal pension. Delay could be costly.

There are limits to the amount you can contribute each year to a personal pension, although they become more generous as you get older. All contributions qualify for full tax relief. Any growth in your fund is free of all tax, which makes a personal pension an extremely tax-efficient way of investing.

Even if you have already made your maximum contribution in the current tax year, you can use a lump sum to catch up on previous years' contributions if they have not already been used. The Inland Revenue allows you to put in the maximum allowable amounts up to six years later. So if you are expecting a good cash Christmas bonus, this is a highly tax-efficient means of using it.

Investment strategy can come into play when putting extra money into a personal pension. There are higher and lower risk opportunities. So it is possible to mix and match to get a good combination with a range of providers according to your own individual pension needs.

You do not have to put all your personal pension money into just the one fund, but do take professional advice to avoid pitfalls. There are some simple rules you should follow when considering an investment, particularly something as important as your pension. You should look to invest with companies you can trust. Charges will also come into the decision-making process. Bear in mind that the higher the charges, the less money there will be invested on your behalf.

Most personal pensions are operated by life companies, although other financial institutions have been getting in on the act. These include investment and unit trust groups, friendly societies and retailers such as Virgin and Marks & Spencer. Charges vary but often include initial charge, annual management fees and monthly administration charges. An annual 1 per cent management charge may seem small at just pounds 10 for every pounds 1,000 in your fund. But that soon grows to a make a dent in your pension pot.

You could also consider the benefits of investing in personal equity plans, while they are still available, to boost cash in your retirement. These can offer greater flexibility in that the cash is not locked away until your retirement date.