The good news is that pensions law is being transformed as the Government fights to cut back the hidden charges which have ruined so many of the personal pension plans sold in the past.
Unless you're in a company pension scheme, you need to read on. The stakeholder pension, is the Government's way of targeting five million people who rely solely on the state scheme.
It is a new private pension, which runs along the same lines as personal pensions, but crucially, it has much lower charges and is open to modest savers with �20 a month to save.
Stakeholder pensions are already open to the self-employed, contract workers and those who are not currently working but can afford to put money aside for retirement. You can also take them out for your children.
Crucially the annual management charge is 1 per cent a year at most and there are no up-front charges. You can switch your pension to another provider at any time cost free. You can also change the amount you put in or stop altogether without facing a charge.
You can join the stakeholder scheme set up by your employer or buy one through an independent financial adviser. They are available from banks, building societies, insurance and investment companies.
Your money goes into a pooled fund and the stakeholder managers or trustees decide how it is invested over the long term. When you retire you use the fund to buy a pension.
You can save between �20 and �234 a month into a plan. This makes the maximum basic contribution �2,808 for this tax year (April 6 2001 to April 5 2002). The Inland Revenue increases this to �3,600 through tax relief.
In other words, every �100 you put in as a basic rate taxpayer turns into �128 after a 22 per cent tax relief.
You can also pay in lump sums when it suits you as long as you do not breach the maximum contribution limits. Higher rate taxpayers can reclaim the extra tax relief through self-assessment forms.
The amount you put in a stakeholder pension counts towards the overall limits governing personal pensions. For the under 35's this is 17.5 per cent of your earnings rising to 40 per cent for 65 to 74 year olds.
Jon Biggs, associated director at independent financial advisers Chartwell Investments says: ' Stakeholder is no different than other pensions. You have to tie up your money until you are 50 and buy an annuity by the time your are 75.' He currently favours the stakeholder plans run by Norwich Union and NPI.
But stakeholder pensions are not for everyone. At independent financial advisers Torquil Clark,Tom McPhail, head of pensions says: ' If your employer offers a company pension scheme, this is normally your best choice rather than setting up your own stakeholder plan.'
This is because your employer generally makes contributions to a company pension scheme and the benefits are more generous. Among stakeholder plans he favours schemes run by Friends Provident and Standard Life.
Useful telephone numbers:
The Department for Work and Pensions (the renamed DSS) has a guide for individuals 'Stakeholder Pensions - your guide'. Tel 0845 7 31 32 33 or go to www.pensionsguide.gov.uk
Office for the Pensions Advisory Service (OPAS) helpline: 0845 601 2923. OPAS is funded by the Department for Work and Pensions and the Financial Services Authority.
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