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Tuesday, November 10, 1998 Published at 14:56 GMT

Business: Your Money

Path through the pension maze

A comfortable retirement relies on good pension planning

The long-running pension mis-selling saga has focused on the critical importance of getting pension arrangements right.

The implications of bad decisions, or the bad advice behind them, can mean thousands of pounds difference in retirement income which can turn a comfortable retirement into a struggle.

An estimated £11bn in compensation will eventually be paid to workers poorly advised between 1988 and 1994 to buy a personal pension when they would have been better off in an occupational scheme.

One of the big lessons of the mis-selling scandal is that the more a person knows themselves about their retirement savings options, the better off they will be, whether a professional adviser is used or not.

The major decisions any worker needs to address in picking through the pension maze are:

  • Choosing the right type of scheme, be it private or occupational, that will maximise retirement benefits
  • Finding professional and objective advice, be it from a licenced adviser or fund trustee, that will lead to the right decisions
  • Whether enough is being contributed to make for a comfortable in retirement

[ image: Good, objective advice critical]
Good, objective advice critical

Occupational, or company pension plans are provided by an employer. If one is available, in almost all cases workers are better off joining it, rather than taking out a personal pension privately.

The big advantage is that the employer contributes to your pension account, or perhaps provides the whole thing.

But there are different types of company pension schemes, and personal pensions certainly have a role to play.

For a full rundown of the different types of pension plans click here

Advice critical

Whatever the circumstances, objective professional advice is an important part of getting things right.

If a company pension is available, informed advice should be provided by the employer or the trustee of the pension fund.

Personal pension investors should seek out an independent financial adviser. Some people are happier using an adviser who charges a fee rather than one who earns commission from particular products.

Topping up

Finding the right scheme is one thing, but making sure enough is being put in to provide a comfortable retirement is another, especially where defined contribution company schemes and personal plans are involved.

Standard contribution levels may not be enough, especially is you do not started saving for retirement until well into your working life.

The issue here is similar to the choice of overall pension scheme. Additional voluntary contributions (AVCs) are often possible in occupational schemes.

However, separate personal stand alone 'top-up' schemes are available which workers can use to supplement their basic scheme.

These free-standing additional voluntary contributions (FSAVCs) are also now embroiled in the mis-selling scandal amid suggestions that workers in occupational pensions are being advised away from using more-generous AVCs attached to their basic scheme toward private FSAVCs.

Good advice from a truly independent adviser or the company scheme's trustee should be taken.

You can contribute up to 15% of annual earnings to a pension scheme, including any AVCs.

Extra benefits

Finally, pension schemes are not just about retirement income, they also come with an array of attached side benefits including life insurance, disability cover and partner pensions.

Always consider the value of these and compare between pension scheme options as part of your overall pension choice.

Is your pension scheme up to scratch? For a checklist what a good scheme should offer click here

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