Pensions- what can you expect at retirement

Enjoying the spoils of a comfortable retirement after years of working requires planning. Whether you end up living in the lap of luxury, or have to count the pennies, can be determined by the decisions you make for your pensions saving.
Many factors can have an impact on the pension you receive - the age at which you start saving, the amount you save, your investment choices and market fluctuations. Investment decisions are usually out of your hands as, once you choose your pension plan, the trustees or fund managers take over. However, the time you start setting money aside and the amount you save is entirely in your hands.

Market fluctuations are also notionally out of your hands - but you can plan for the effects by consolidating your gains over the five or ten years leading up to retirement. Moving them from riskier investments into more secure areas - such as cash or bonds - can help guard against downturns in equity markets which could lose you money at the last minute.

When you actually reach retirement, your pension savings will normally be used to buy a lifetime annuity which provides you with an income for the rest of your life. However, the rate at which you buy this annuity is also dependent on market conditions, which fluctuate with interest rates and inflation. Hence, the income you can buy this year with your fund may be higher or lower than that available last year - or next year. In a time of low rates, the effects might be mitigated to an extent by using deferred or phased retirement plans.

Finally, some employees will be in defined benefit or final salary schemes, which promise to provide a fixed amount in retirement, based on salary and years of service - irrespective of stock market movements, interest rates or inflation. Generally, this could be up to two-thirds of your final salary at the company, or an average over a specified period in the job. However, the stock market slump of 2000-03 reinforced the problem of increasing costs associated with these schemes and many have since been closed. For those still in them, the contributions are increasing.

Essentially, you will get back from your pension plan what you put in. It is therefore most important to start early and to save as much as you sensibly can.