We walk alone on pensions

As much-needed reform fails to see the light of day, it's up to us to take responsibility for our retirement planning, writes Melanie Bien

The Government might refuse to recognise that there is a pensions crisis, but the facts make grim reading. BT and Royal Mail recently announced a combined hole of more than £10bn in their pension funding under the new FRS17 accounting standard. And they are not alone in struggling to meet their commitments: the National Association of Pension Funds reports that more than 40 per cent of companies have closed their final salary pension schemes in the past year.

To make matters worse, a recent Inland Revenue computer glitch means thousands of people won't get the full state pension on retirement. And almost two months after Ian McCartney vacated the job of pensions minister, nobody has replaced him. The consultation period on the pensions Green Paper has now ended and we should be moving forward to the next stage, but there is no one to lead the way.

As the Government procrastinates, it looks like it's down to us to help ourselves. If you haven't yet started saving for a pension, the bear market we have experienced for the past three years might make you think that it isn't a good time to take the plunge. But look at it this way: cheaper shares mean you get more for your money and, as you will be invested for the long term, this is a great opportunity to invest in your pension.

However, it can be hard to stash money away for a retirement that's decades in the future if you've got more pressing matters to attend to. In your twenties, paying off student debts and saving for a deposit on your first home are likely to be your priorities. When you get into your thirties, you might be starting a family. But if you wait until your forties to begin a pension, your retirement fund will be pretty meagre by the time you actually need to call upon it.

Consider this: a 25-year-old male intending to retire at 65 would need to invest £50 a month to end up with a pension of £49 a week, on top of his state pension. But a 35-year-old would need to save £79 a month to end up with the same pension, meaning it would cost him an extra £10,800 during his lifetime. Check out the pensions calculator on the TUC's website (www.workSMART.org.uk) to see how much you should be saving.

Both these examples assume contributions won't increase over time in order to demonstrate the fact that the longer you are invested, the better. In practice you should increase contributions as you earn more to be sure of a decent pension.

The recent bad publicity surrounding pensions might put you off investing in one, but the tax breaks they offer are unbeatable. Every 66p you contribute (78p for basic-rate taxpayers) is topped up by the Government to £1.

If you are keen to start a pension, your employer's money purchase scheme should be your first port of call because the company will contribute a percentage of your salary to your fund. Final salary schemes, where you get a proportion of your final salary on retirement, are on the wane. But a money purchase scheme, whereby you and your employer make contributions, is the next best thing.

If you are self-employed or move job on a regular basis, you might want to set up your own pension. Stakeholder pensions are ideal for this because they have low charges - a maximum of 1 per cent per annum - and are flexible, allowing you to contribute £20 one month and nothing the next.

Although take-up of stakeholder schemes has been limited, they are a good place to start saving for retirement. But remember: if you stick to the minimum monthly investment of £20, you'll never build up a reasonable pension. For details of stakeholder plans, visit the Occupational Pensions Regulatory Authority's website (www.opra.org.uk).

Once your pension is up and running, it is important that you monitor it fairly regularly. "I suggest you set yourself a day or week every year when you review your pension," recommends Tom McPhail, head of pensions research at independent financial adviser Hargreaves Lansdown. "If your salary has gone up, have your pension contributions increased accordingly? Also look at the fund's performance to see whether you are still on course to retire at the age you want, or whether there are better funds out there with lower charges."