Money: Pension schemes spurned by employees

ONLY half the people eligible to join many workplace pension schemes are doing so, even though it is normally a valuable employee benefit, according to an authoritative survey of schemes by the National Association of Pension Funds (NAPF).

Where there is a pension scheme at work it is normally worth signing up for because employers generally subsidise such schemes. Some schemes are non-contributory - meaning that a certain level of benefits will not cost you a penny in salary deductions. Others may more than match your own contributions and may also subsidise the administrative costs of the scheme.

By contrast, very few public- or private-sector employers surveyed by NAPF will contribute to employees' own personal pension plans if they choose not to sign up with the company.

The survey also found that new-style "money purchase" workplace pension schemes are typically likely to produce lower pensions than more traditional "final salary" schemes. The benefits from money purchase schemes are more related to the investment performance of pension monies, while in "final salary" schemes benefits are based purely on length of service with an employer. The overall level of contributions to money purchase schemes was found to be around half that of contributions to final salary schemes.

If you do not think a workplace pension scheme will provide for a comfortable retirement,you can make "additional voluntary contributions". Again, employers normally subsidise these "AVC" plans.

Of course, you may not have the chance of a workplace pension scheme. This is where personal pension plans come in.

Like occupational schemes, contributions to personal pensions attract tax relief at your highest rate of income tax - so for a 40 per cent taxpayer each pounds 1 of pension saving effectively costs just 60p. Personal pensions also offer the potential attraction of paying out from age 50, even if you are still working.

q The 'Independent on Sunday' has a free 16-page guide, 'Making Your Investments Work for You', which is sponsored by Wesleyan, a mutual financial services company and a seller of personal pension plans. For a free copy call 0800 137 9749 or fill in the coupon on this page.