That's pretty much the prospect unless you make additional pension arrangements either by setting up a personal pension or by being part of a company scheme.Before seeking advice on pension provision it's worth getting the basics straight first.

Occupational schemes

Company pensions are set up by employers for their staff. They can be "final salary" or "defined benefit" schemes. Either the employer or the employee or both contribute to the scheme on a monthly basis.

When the employee retires he or she receives a tax free lump sum and a pension based upon the number of years over which his or her contributions have been made.

Alternatively an employer may set up a "defined contribution" or "money purchase" scheme. In this case the monthly contributions are put into a fund earmarked for that particular employee who, when he or she retires, is able to take a tax free lump sum and, with the balance, buy an "annuity."

Annuities are sold by pensions providers and insurance companies and guarantee the policyholder an income throughout his or her retirement.


Personal pensions

Many employees prefer to set up personal, "portable" pensions of their own. Those who are self-employed also do so, of course.

In this case, as with defined contribution schemes, contributions are set aside in the pension plan and used to purchase an annuity before age 75.

One of the great attractions of pension schemes as a method of saving for retirement is that there is tax relief on contributions up to government set contribution limits. There is no other investment you can make which will give you 22 or 40 per cent tax relief, depending on the highest rate of tax you pay.
Which sounds most appealing, paying tax to the government or saving it for your old age?

Stakeholder pensions

With government's introduction of Stakeholder pensions in 2001 there are now plenty of low-cost pension offerings being put out by the pensions providers to enable most people, especially those on lower incomes (even those not working), to set aside funds for their retirement. ( More about Stakeholder)

And the key to Stakeholder as to any other pension is to start contributing as early as possible and keep making contributions for as long as possible. That way your pension pot has time to fill up and for the investment returns on the fund to compound through reinvestment over many years. The result should be a significant sum of money to invest when you retire.

If you haven't set up a pension yet, then armed with these basics it is now time to ask your financial adviser to obtain some quotations from pension providers. There is no time like the present. Once you have a range of options to consider you can then compare and contrast what's on offer.

No one will suggest that a pension should be the be all and end all of your personal finance arrangements. But putting one in place is an important long-term investment decision. Even if retirement seems a long way off right now, just think of what life would be like if a state pension of the equivalent of £80 a week was all you had to live on…