Successful, single and (when it comes to pensions) falling apart

How to pull yourself together with a pension plan that accommodates your lifestyle. By Jane Slade and Maisha Frost

Young, successful and desperately seeking a lifelong partner. You don't need to be a real-life version of Ally McBeal or Bridget Jones, or a male equivalent, to fall into this category. All it takes is a healthy instinct for financial self-preservation, particularly where your eventual retirement is concerned.

Unless single people manage to find someone to share their days with or - more importantly - are prepared to plan ahead for the day they will no longer be working, they could well find their finances, and their lives, falling apart.

Single people are more likely to change jobs and move home more often than married couples. But the way pensions are presently structured means that pension schemes, particularly company ones, often fail to reflect this fact.

As Muriel Sime, technical specialist at the Occupational Pensions Advisory Service, explains: "You pay the same pension premiums as someone who is married, but as a single person you [may] lose out because you cannot nominate a beneficiary. If you are married, your spouse is automatically that person."

The position is worse if you cohabit, no matter how long for, and your partner dies. Were that to happen, you may be denied a widow(er)'s pension under the pension fund's rules.

Ms Sime adds: "I do come across many single people who feel aggrieved about this and feel they are being discriminated against. In some cases the balance is redressed in that a dependent can benefit, but not a friend or colleague."

Under this system, practiced by many private-sector employers' schemes, it is possible to nominate a dependent as beneficiary of your pension. Yet not all companies do this and - to the bafflement of many in the public sector - their schemes, including those for police officers, nurses and civil servants, also refuse to allow unmarried dependants as beneficiaries.

Robert Guy, technical director of independent financial-advisor John Charcol, explains that: "While the discrimination cannot be disputed, premiums with company pensions would rise substantially if everyone could nominate a beneficiary. Such costs are not built in, to pay for them everyone would get less value." Potential discrimination does not end there. Many company-pension schemes offer so-called "defined benefits". This means they pay a proportion of people's final salaries at retirement, linked to the number of years they have worked there.

Such schemes clearly benefit those who remain with one employer for most or all of their working lives, retiring on a high final wage. But for many young single people, career mobility leads to repeated job-switching. In turn, this may mean that they will end up with 10 or even 15 years' worth of mini-pensions, each reflecting the relatively junior positions they held in that firm until they left. Even if they acquire more senior status - and are perhaps no longer single - they will not have enough seniority to build up enough years' worth of pension entitlements.

While not usually as generous as final-salary schemes, many companies now offer "money-purchase" pensions. This allows contributions from both employer and staff to be invested so that the final pension-pot buys everyone an income at retirement, regardless of their marital status. This option also allows people to nominate beneficiaries, although, again, the value of the initial pension will fall, since the pension provider will base its pay-out on the expectation that it will have to make it for longer.

Many companies now offer employees personal pension plans that in theory are transferable to another employer. These are known as group personal pensions". In practice they are not always flexible.

Michael Kirk, an independent pensions adviser at Michael Kirk and Partners, says: "Another company may not take [that pension] on, often citing administration problems. People then have no choice but to seal the old pension and go with the new one."

Those who have a personal pension, but may join a company scheme at some point, should consider a plan that can be converted into a top-up scheme.

Despite these disappointments, it is rarely a good idea for single people to opt out of a company pension scheme and into a personal one. The exception might be in cases where a person knows he or she is unlikely to remain with an employer for more than a year or so at the most. It can make sense for, say, gays or lesbians - who are not allowed to nominate same-sex partners as beneficiaries - not to subsidise pension payments for married couples.

Private-pension companies are adjusting to the increasing likelihood of singledom for increasing proportions of the population. Iain Oliver, pensions development manager at Commercial Union, says: "There is no doubt pensions have been rather guilty of lagging behind and not recognising the way people live and work now. Few people stay with one company for life and many divorce or prefer to live together.

"Our policies have had to change over the past three years to reflect this. It's the provider who has to take more risks now, before it was the client."

Gordon Maw, marketing manager at Virgin Direct, says his company's plan has been designed to meet those contemporary needs. "What people need most is value, no penalties and good returns. We get a lot of 24-35 year olds come to us and most don't know what they will be doing in 10 years' time, let alone 30. For singles the rule is you need a savings plan that is flexible enough to accommodate whatever you may need in the future, but not penalise you when you do it."