Picking up the perfect pension

Pensions have rarely been out of the news in the last year, but what are your options and how do you make the most out of your pension?
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Over the course of 2006, European rulings, government reports, and major changes to the pension rules all shook the pension system up - but these changes have not yet inspired the British public to take up the challenge of providing for their own retirement.

Figures released this week from Which? show more than one person in three is not sure they will have enough money to live on as pensioners, while just one person in eight is confident they will have enough cash in retirement.

And there are more problems lurking for Britons than they realise.

Increased life expectancy means UK residents are living longer and longer, while declining birth rates mean there will be fewer working-aged Britons paying tax to support the retired population.

The obvious way to rectify this is to have Britons working longer and saving more for their retirement so they are less reliant on the state, and the government has announced plans to raise the state retirement age to 68 over the years to come and introduce a new pension savings plan to boost savings in retirement (full story).

Additionally, in an effort to make it easier to save for your sunset years, in April the biggest shake-up of pension rules for 50 years saw a whole host of new products included in what counted as pensions (full story).

But Britons are apparently not listening.

The majority of Britain's working population is planning to retire before the current state retirement age of 65, with the average man planning to quit work at 63 and the average woman at 62, figures from Aon Consulting reveal.

Additionally, a Scottish Widows study revealed that while employees who are willing to work an extra three years can add 32 per cent more to their pension pots under the new government scheme - only a small number were actually prepared to do this.

And over a third of adults (34 per cent) say they cannot afford to save anything for their retirement, which could see millions opting out of the scheme.

The prospect of a poor retirement is not bothering millions of UK residents either - with 15 per cent of Britons thinking someone else should be responsible for funding their retirement, research from Aon Consulting shows.

The study reveals 25 per cent of current workers think the government should share the responsibility of funding their retirement, with 22 per cent believing their employer should contribute to their life after work.

And this tendency is worse the younger people are, 39 per cent of 18 to 24-year-olds think the government should fund their retirement while 33 per cent think their employer should contribute to their personal pensions.

This compares with 21 per cent and 17 per cent of 55 to 64-year-olds respectively that think the government or their employers should contribute to their personal pensions.

But those trying to live on the state pension could be in for a rude awakening, with research from Axa showing Britons would run out of money after just three days if they were forced to rely on a state pension.

The pension firm asked 26 households from across the country, including couples and single people, to try and get by on just the basic state pension and - having started the experiment on Thursday - most used their entire weekly income before Sunday lunchtime.

And company pensions are not offering the prospect of a prosperous retirement either. Half the senior financial executives questioned in a Fidelity International survey said their defined contribution company pension schemes will not allow employees to retire in comfort.

So what should you do to make sure you are not caught out and can retire in comfort?

The first thing to do is to take action now, and not wait for a white knight (or the government's pension changes) to save you.

Figures from Which? show that to add £1,000 a year to your retirement income, a 30-year-old needs to save around £28 a month. Someone aged 40 looking to add an extra £1,000 to their annual income in retirement has to save around £50 a month more, while a 50-year-old would have to put away more than £100 a month to boost their retirement income.

Another option is simply to work longer - you can currently boost your state pension by ten per cent by delaying when you start taking it.

Get a state pension forecast here: www.thepensionservice.gov.uk

To work out how much you need to put away each month to have a comfortable retirement, see: www.pensioncalculator.org.uk