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Friday, 23 November, 2001, 17:18 GMT
Q&A: What should I do with my pension?

Pensions organisations have warned that many people could face shortfalls in their pensions. So what should you do if you are worried, and how can you make sure that you don't face a far from comfortable retirement?

Are you saving enough?

Figures released by The Association of Consulting Actuaries indicate that most people are failing to save enough for their pension.

According to ACA, if you are starting a pension at age 25, you will need to save 10-15% of your annual salary.

If you are 40 years old and have not yet started a pension, you will need to save 17-24%.

For most people, these amounts are completely unfeasible.

How do I know how much my fund is worth?

The government is in the middle of a pilot scheme, which plans to improve the quality of information people receive about their pensions.

The Department for Work and Pensions plans to introduce a combined state and personal pension statement next April.

How much do I need to save?*
Age 25: 10-15%
Age 30: 12-17%
Age 35: 15-20%
Age 40: 17-24%
Age 45: 23-30%
Age 50: 32-45%
Age 55: 50-70%
*Age commencing pensions saving, guideline as % of earnings to age 65. Source: Association of Consulting Actuaries

This will give everyone who contributes to a private pension a much better idea about their likely retirement income, as it will project the growth of both your state and personal pension contributions within one statement.

In the meantime, you will need to contact your pension company to find out how you can get an annual statement of your pension fund value and ask if it will project your likely income.

How do you do this?

The usual procedure involves contacting your scheme's trustees direct, you can find this out from your personnel department or in-house pensions office - if you are paying into an occupational scheme.

Your pension funds trustees are not obliged to send you an annual statement automatically, although some will do.

If you do want it you can request this in writing. The trustees must then respond within two months.

If you are paying into a final salary pension scheme, the amount of money you receive when you retire will depend on your final salary and how long you have worked for the firm.

Ask for an "annual benefits statement".

If you have a money purchase scheme or stakeholder pension, the provider normally only provides details of your total pension pot, although most should provide a projection.

Tom McPhail, a pensions expert at Torquil Clark, says: "Remember that the growth projection will be based on a range of assumptions. Who knows what is going to happen to your salary, and investment markets?"

Is the pension fund solvent?

Following the Equitable Life debacle you may now want to find out about the state of the overall fund value.

Each year a report is produced by the trustees of your pension scheme and every three years there is a valuation by actuaries, who analyse financial risk.

Since 1986, scheme members have been entitled to obtain this information from their pension fund's trustees.

You must write to the trustees of your pension scheme and receive it within two months of applying.

These documents can be extremely complicated and full of jargon.

The Pensions Advisory Service (Opas) helps people who need advice on their occupational scheme and can be contacted on 020 7233 8080, or via its website (see links on right).

How solvent is my employer?

"You should look at how financially stable your employer is," Torquil Clark's Tom McPhail says.

If your employer goes bust, it can not touch your pension fund, but you may not get as much as you had originally thought.

Even those with well respected final salary schemes could be in trouble.

If there is not enough money to fund everyone's scheme, then you may be required to buy a deferred annuity.

The insurance company will then estimate your pension on an assumption of what your final salary pension scheme is at the moment.

As the insurance company will now be guaranteeing your pension fund, you may get less than you had expected.

The Pensions Advisory Service says that if the company winds-up, it is not the responsibility of the employer to meet the full pension liability - only to meet the transfer value.

How can I avoid problems?

You should review your pension each year.

"Check to see how much you are saving. It is very easy to forget about your pension," says Mr McPhail.

If you are concerned about having a shortfall, you should seek financial advice.

You can find out about a registered IFA in your area through IFA Promotion (see link).

How can I make extra payments?

The advantage of contributing to a pension is that your contributions attract tax relief.

For basic-rate taxpayers, every 78p invested is topped up to 1 by the government; for higher-rate taxpayers, a further 18p is added.

Most schemes will allow you to make additional voluntary contributions (AVCs).

This is usually cheaper than contributing to a separate scheme through free standing voluntary contributions (FSVACs).

You can change the amount of extra payments you make, and how often you pay them, but you should check to find out if there are any extra administration charges involved.

Alternatively, you could top up your pension by contributing to a stakeholder pension, as long as you earn less than 30,000 a year.

However, according to Torquil Clark, there is a loophole which means that people who work for more than one employer can contribute to a stakeholder regardless of their annual income.

Mr McPhail says that people should first choose a stakeholder pension - if they can - before choosing AVCs.

Should I make other investments?

The Equitable Life debacle has proved that even the most established names in financial services can get into difficulties.

You should spread the risk across different fund management companies or assurer if possible.

You could also spread the risk further by investing additional money in an individual savings account (Isa) or through property.

Are there any useful organisations that can help me?

Contact the Pensions Advisory Service (Opas) for general pensions information or if you are in dispute with your company's pension scheme.

You can ring the Opas help line on 020 7233 8080.

If you have a dispute that you can not resolve with your employer or Opas you have the legal right to refer your complaint to The Pension Ombudsman deals with serious complaints.

Write to Pension Ombudsman, 11 Belgrave Road, London SW1V 1RB.

The Occupational Pensions Regulatory Authority (Opra) deals with complaints about occupational schemes. Contact 01273 627600.

See also:

15 Oct 01 | Business
Trouble in pension land
17 Nov 00 | Business Basics
Pensions factsheet
23 Nov 01 | Business
How can I retire comfortably?
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