A model for us all

When looking for pensions advice, it's worth turning to Samantha Fox, who recognises the value of making an early start.

Samantha Fox is not the first person who comes to mind when most of us think about pension planning. But the former glamour model certainly knew what to do with her assets to ensure a secure future.

One of the first things Ms Fox did when she started earning big money was to set up her pension fund. Now she is pursuing a singing career in the safe knowledge that if it falls flat, she at least can look forward to a good pension.

While few of us can expect to earn so much money early on in our lives, there is no reason why, with careful planning, we shouldn't be able to build up a good pension fund for when we retire.

The best way to ensure you have a decent income in retirement is to start saving into a pension scheme while you are young. If you are a member of your company scheme and have been contributing to a pension for most of your working life you will probably be on the right track.

But it is worth checking with your employer exactly what level of pension you can expect and if you need to contribute more to ensure a comfortable retirement.

If you are not in a company scheme - perhaps you've just changed jobs or have taken a career break - then you need to make your own pension arrangements. And the sooner you start contributing to a pension scheme, the cheaper it is.

The table shows how much you need to put into a pension scheme each month in order to build up a fund big enough to buy an income in retirement at age 65 equivalent in today's money to pounds 12,000.

The figures are based on industry assumptions, such as that your investment will grow by 9 per cent a year and that you will increase the contributions into your pension plan in line with rises in your salary, estimated at 6 per cent a year.

As the table clearly shows, the later you start a pension the more you will have to contribute to build up enough money to buy the same income in retirement. So if a man starts contributing to the pension plan at age 24, he will need to contribute pounds 173 a month, but if he does not start contributing until he is 34 he will need to contribute pounds 247 a month.

Contribution levels rise sharply the longer you wait to start a pension. Late starters may find it near-impossible to build up a big enough pension pot to buy the income they want in retirement. This could be because they cannot afford the levels of contributions necessary, or because the contributions are higher than the maximum contributions allowed into personal pension plans.

As Debbie Gorski, marketing director at Black Horse Financial Services, the financial services arm of Lloyds/TSB, points out: "It's all too easy to put off thinking about a pension, either because retirement seems so far away or you think it will cost too much. This prevents many people from starting a pension early enough, leaving them with a much smaller fund than they need or substantially higher premiums later on".

Women need to save more in their pension plans than men. This is because they typically live longer than men and so have to pay more to obtain the same level of income as men in retirement.

The figures show how much it costs to buy a fixed level of income in retirement. But if you want your income to rise throughout your retirement you will need to buy an index-linked annuity, which costs more. If you want your retirement income to rise by 5 per cent a year, you will need to contribute between 40 per cent and 55 per cent more into your pension scheme, according to NatWest Life, the pensions arm of NatWest Bank. Few people currently are saving enough into their pension scheme to buy an adequate level pension.

But ideally you should be looking to save enough to be able to afford a rising income in retirement, says Paul Stott, public relations manager at NatWest Life.

"People are retiring earlier and living longer so retirement can easily last for 15 or 20 years. Over this period, even low levels of inflation can seriously erode the value of your pension unless your income increases each year," he says.

There are further reasons for starting retirement planning early. The first is that recent employment patterns indicate that people of working age are less and less likely to remain working with one employer, or even two or three, over their entire lives. Moreover, they are less likely to remain at work to the age of 65, or even 60, as their parents did.

The net effect of these changes is that people retiring in 30 years' time are likely to receive far smaller pensions than those leaving work today, a fact made worse by the fact that state pension benefits are shrinking fast. By the year 2030, it is estimated that the basic state pension will be worth barely pounds 35 a week at today's prices.

So if you have yet to start a pension, or have not been paying enough into your pension scheme, take a leaf out of Sam Fox's book and start now

Can you afford to retire?

Monthly contributions required to provide a pension of pounds 12,000 a year

Age next birthday Men Women

25 pounds 173 pounds 194

30 pounds 204 pounds 230

35 pounds 247 pounds 278

40 pounds 314 pounds 354

45 pounds 416 pounds 469

50 pounds 583 pounds 656

Figures assume retirement age 65, with contributions growth of 6% and investment growth of 9%

Source: Black Horse Financial Services