FEAR OF FINANCE Simon Pincombe

For some time I have harboured a growing suspicion that my plan of retiring to a yacht on the Med at 45 as a part-time floating consultant had fundamental flaws.

These have been confirmed following a profoundly depressing drink with an actuary (there being no such thing as an enjoyable drink with an actuary).

The doom-monger was of the opinion that most people in their mid-thirties to early forties are chronically underfunded as far as their future is concerned and will more likely be wandering the streets of English cities rather than the Rivieras of Europe in retirement.

This was all extremely upsetting. Then the annual report and accounts of my pension fund dropped through the letter box -18 pages of facts, figures, reports and opinions that amounted to diddly squat. What I had hoped to learn was how far adrift the funding for my future was. Sadly not an inkling could be gleaned from the report.

The pension plan in question is a "money purchase'' scheme, which means the value of the pension is inexorably linked to the performance of the fund manager - in this case Mercury Asset Management. All one can deduce of any relevance from the report and accounts is that MAM has charged almost pounds 58,000 to increase the total value of the fund by pounds 88,656.

Like other fund managers, the problem appears to have been MAM's reading of the equities markets: "the year to 31 March 1995 has been somewhat flat.'' It produced a return of 1.2 per cent, noticeably lower than the 2.8 per cent of the FT All-Share index. Given that almost 93 per cent of the pension scheme money is invested in stocks and shares this is not in the least bit amusing.

With a deep sense of unease I ring my financial adviser. Patiently he explains how it works.

The level of pension you receive when you retire depends on the annuity rates prevailing at the time. But as a rule of thumb you can reckon that your annual retirement income will be between 7 and 12 per cent of the value of your pension pot.

Thus a 30-year-old with a fund of pounds 10,000 would get between pounds 700 and pounds 1,200 a year if there were no further contributions. However, says the financial adviser, if that 30-year-old wants to retire at 60 then he or she will need to contribute 10 per cent of their salary each year in order to receive a pension of just 50 per cent of their final salary. This assumes an average annual growth rate of 9 per cent for the pension fund with salary rising in line with an average inflation rate of 5 per cent.

It gets worse the older you get. A 35-year-old with a personal pension currently worth pounds 20,000 will need to put in 12 per cent of salary to receive 50 per cent of final pay on retirement. A 40-year-old with a pounds 30,000 fund needs 16 per cent to achieve the same level.

But if the 35-year-old wants to retire at 55 then the annual contribution goes up to 15 per cent of salary for half of your final salary on retirement. Not so bad if your employer is Marks & Spencer and contributes 12 to 15 per cent. But how many come even close?

Next week: How to rob banks and get away with it.