Facing up to reality: the pensions dilemma

Lisa Thornton, 36, works for the Sock Shop. She has been contributing to a stakeholder pension fund since she was 21

Lisa Thornton, 36, works for the Sock Shop. She has been contributing to a stakeholder pension fund since she was 21

"When I first started paying for my pension, I was contributing £16 a month and I knew a lot about it from the literature I was sent by the pension company. . At the time I was the only one of my friends who took out a pension, and I put on the form that I'd retire at 50. That would be nice, but it will depend on my financial circumstances. I can start drawing on the pension once I'm 50, even if I'm still working."

Verdict: If Lisa retired at 50 she would receive approximately £930 per annum. If she continued the same contribution until 60 her pension would rise to £2,243 per annum. My advice would be to increase contributions, She should be paying 20 per cent of her salary. It is important to continue to review the level of your pension contributions.

Cregg St Rose, 26, is a freelance graphic designer, working in an electronics store

Mr St Rose has not yet considered starting a pension scheme. "I will do it. It's on my mind ... I know I should have started one when I was about 20. I haven't got any other investments either, no ISAs or anything. The shop has a company pension policy but I probably won't be here long enough for that. I'll probably just start a private pension. I'm not sure if you can do both. I'm hoping to start my own graphic design company. I'd like to retire when I'm in my forties, but I suppose realistically I'll retire when I'm 50."

Verdict: With no pensions savings so far, Cregg is unlikely to be able to retire before 55 at the earliest - and only if he gets started immediately. If he retires at 65 and saves £121 a month from age 30 till then he would have a retirement income of £12,300 per annum.

Simon Blacklock, 36, has a managed, money purchase pension provided by his employer. He has been paying the maximum contribution to the fund for seven years.

"I pay up to the ceiling, which is about 17.5 per cent, and might go up to 20 per cent when I hit a certain age. I've had the scheme since before I was 30. I plan to stick with the same job, and I haven't really thought about when I'm going to retire. It strikes me as though you can't just rely on your pension any more, so I have some ISAs as well as my savings.

Verdict: Simon appears to be in a reasonably healthy position.

He has started at a good age and the contributions seem adequate. At the age of 36 he could contribute 20 per cent of his salary to his pension.

Fiona Harvey, 42, is a teacher. She has a teaching pension but has not started contributing to any private pension schemes.

"I haven't started a pension fund, and it's becoming a bit of a worry. I have a teaching pension but I don't think it'll be enough to support me in retirement. I expect I'll have to work past 65. I took time off when I had both my children, and being at home meant I wasn't contributing to my pension. I think those long gaps create a big problem for a lot of women. I'm looking at investing in property, and of course I'll inherit a bit from my parents. I plan to start a private plan...soon."

Verdict: Fiona has a really good, secure pension. Public service pensions provide index-linked schemes which are extremely valuable because they maintain the value of your pension in line with the cost of living. Fiona could make up the payments lost through childcare by making additional voluntary contributions.

Peter Fordham, 71, ran his own company and retired from full-time work when he was 46. He made a one-off payment of £3,000 to a pension fund in 1978, but now lives off his other investments.

"I had an inherent distrust of pension funds and insurance companies, and I guessed that there would be a crisis in the future. After I retired from full-time work at 46, I worked for myself and bought income-bearing property. I made my own pension. Now I'm fairly secure, and not likely to run into any serious financial trouble, depending on the Government."

Verdict: Pensions are more tax efficient than other options, however, you need not be restricted to pension saving for your retirement. The ideal scenario would be to spread your investments, including property, for those who can afford it. Another option would be to take out an ISA, which can be drawn down tax-free at any time, unlike the pension, which is intended to provide income in retirement. An ISA might suit people better who do not want to tie up their capital until they retire and gives them more flexibility about when they can dip into the fund. Both investments (pensions and ISAs) benefit from tax-free growth on income and capital within the fund.

David Goode, 58, is already drawing a company pension from his first employer, whilst contributing to a separate, less substantial plan provided by his current company.

"The past occupation pension that I'm already receiving is quite handy, but the new plan that I'm contributing to will come to a fairly insignificant sum.

I've never known exactly how much I was contributing because the company paid it all from my salary. I'm going to retire soon and while my existing pension isn't vast, it is enough.

Like the vast majority of people, I've never done any pension planning myself. Nobody did back when I started work, because most companies had some kind of plan in place.

I'm glad I'm not 35 or 40 now. I think people in that age group are in the worst position. Like me, they won't have done much planning and I don't think the government can sustain them. We're all living too long!"

Verdict: It is important to find out exactly where you stand over your pension entitlement so that you are in a better position to make additional payments should the need arise.

However, anyone in an employer scheme is in a fortunate position as they have the benefit of the company's support.

THE EXPERT

Elisabeth Gibling, Pensions Technical Manager Chase De Vere.

Where Elizabeth has made specific calculations she has done so based on an assumption of a 6 per cent growth rate after charges of one per cent. The amounts are approximate.