Which pension is right for me?

Planning for retirement is one of our most important life choices; after long years of work, we all love the idea of lazy days, holidays in the sun, and the freedom to do as we like. But this probably isn't going to happen for you without a personal pension; and the message for today's woman is to understand the choices available so you can be sure you're getting the best deal

Why is getting a good pension so important for women?

Tom McPhail of independent financial advisors Hargreaves Landsown points out that women are more likely to need pension provision than men for several reasons.

"Pretty much all the reasons you need a pension - so you can enjoy a good retirement, and because, as we live longer, retirement now can last for up to 30 years - are applicable to men and women. But there are aspects of planning a pension that are particularly relevant to women.

"At the moment, women are significantly under-provisioned for retirement; only a third of women have bought a pension and half of these stop making contributions when they have a baby.

"Women can find it harder than men to build up a decent pension fund because they are more likely to work part-time, or take a career break to bring up children. And for increasing numbers of women, looking after elderly relations means an added burden of care. Women who run their own business will often need to take career breaks for caring reasons too.

"Women should not rely on their husband's pension; nearly half of marriages end in divorce. While in theory pension rights are taken into account during the divorce, in practice it's not reliable: the laws about it are quite new and settlements can often be unsatisfactory. And, in any case, many women nowadays don't marry, or stay single, which gives you no rights to a partner's pension at all."

How much do I need to save?

Tom McPhail explains: "Because women's working pattern is different to men's, the message is: 'Save as much as you can, when you can, as you can.' The more self-sufficient you are, the better; your life may change and you may need to revise your estimate of what you're earning for the next few years.

"If you have made all your National Insurance contributions, you will receive the state pension. You are advised to add to it with a private pension. Payments you receive from a private pension will not affect your state pension, although there are some extra means-tested benefits for which you may not qualify.

"As a rule of thumb, most pensions will pay you an annual income (known as an annuity) of five per cent of the amount of money you have saved. Because women live longer, they tend to get lower rates, and you may find your annuity rate drops as low as four per cent.

"If you buy a pension that gives you less than half your annual salary, you'll be struggling to survive. To get an annuity of half your current salary (half the average £30,000 salary = £15,000), you need to save ten years of salary (£300,000). So you'll need a pension fund of £300,000 to get a retirement income of £15,000.

"At whatever age you start saving, save half your "age" in income. So, if you start a pension at the age of 30, save 15 per cent of your income; if you're 40, you need to put away 20 per cent.

"The good news is that saving for pensions is tax free; for every 78p you save, the government adds 22p. And if you're a higher-rate taxpayer, you get 40p back for every £1.00 you invest.

"If you are a higher-rate taxpayer, you won't find a better deal than saving for a pension; they are still the most efficient and cheapest way to save for those in the upper tax bracket.

"Since April 2006, if you're running your own business, you've been able to invest 100 per cent of your salary into a pension (up to a maximum of £215,000 a year)."

Will investing in property do instead of a pension plan?

"As with all investments, the rule is: don't put all your eggs in one basket. It can be high risk to have property as your only investment because if prices crash, you're in trouble. For instance, the baby-boomers (those born in the 1950s) who bought buy-to-let property to sell for their retirement face the prospect that, just as their demand pushed prices up at the time, so their group need to sell in ten years' time may push it down.

"If you rely on your own home to see you through retirement because it has risen in value, bear in mind that by the time you reach your 60s, because of the variation of house prices round the country, you may have to move hundred of miles away to release the cash. But the reality is most people in their 60s don't want to move away from friends and family. Buy a pension as your core savings plan, and use property as a bolt-on asset."

Why is relying on my business to provide for my old age a bad idea?

"Again, relying on just one investment to see you through thirty years of living expenses is not a good idea. Spreading the income from your investments is vital.

"Don't risk your future income by relying on your business. Instead, make use of tax-free and tax-reducing schemes to invest profits from the business into your pension fund. You could save on tax and boost your pension at the same time. "