Recent research released by the House of Commons highlights that a man of 65 will need to keep working to 71 in order to recoup the fall in the value of his pension fund.

The global stockmarket slump, which has knocked billions of pounds off the value of private pension funds, has combined with historically low annuity rates resulting in a disappointing level of income in retirement.

The average 65-year-old male worker will therefore need to delay his retirement until 2009 to make up the losses which have occurred in the past three years.

In 1999, when the Stockmarket was approaching its peak, a 62-year old-male could, on average, have looked forward to a pension fund of £65,000, which would have provided a lifetime income of about £3,600 a year. This same level of income now requires a fund of about £80,000.

The research organisation, Mori, established that in 1997, 63 per cent of Britain's 23.8 million workforce had the benefit of a pension over and above that offered by the State scheme. The latest research shows that this has dropped to 59 per cent.

The pensions problem is clearly getting worse and, with people living longer, pensioner poverty will increase - leaving many people dependent on their families for financial support.

Many people rely solely on the basic State Pension for their retirement income. Entitlement depends on the individual's National Insurance contributions record.

The maximum weekly pension is currently £77.45 for an individual or £123.80 for a married couple.

Although this can be topped up under the means-tested Minimum Income Guarantee (and, from October, the Pensions Credit) this will increase the single person's weekly pension by only £13.80 and the married couple's by £18.60 - hardly enough for an enjoyable retirement.

The move by many large employers to close their salary-related pension schemes and replace them with money purchase schemes is more evidence of the increasing cost of providing realistic levels of pension income.

There is a genuine crisis in pension funding which we all need to address if we are to be able to afford to retire even at 65.

The Government has released a Green Paper which attempts to simplify the pensions system. Among the measures proposed is an increase in the annual level of tax allowance contributions to £200,000 per tax year within which personal contributions would be limited to 100 per cent of salary, but with a maximum lifetime fund limit of £1.4m, increased in line with the RPI.

The recent introduction of the low cost and flexible Stakeholder Pension is showing a very poor take-up rate.

Although 25 million Britons over the age of 16 know about Stakeholder Pensions, only about one million say they are likely ever to buy one.

The public still feel that they need face-to-face advice on what remains, in the eyes of many, a complex area.

The most appropriate source of advice remains the independent financial advisor, but the low cost nature of the Stakeholder Plan has resulted in severely reduced commissions. The reluctance of most people to pay a fee for advice means that this type of business may genuinely not be viable for the IFA unless arranged on a group basis.

Nevertheless, a Stakeholder Pension plan offers one of the cheapest, most tax-efficient and flexible ways of building up funds.

Personal contributions are paid net of basic rate tax relief which means that for every £100 paid as a contribution, the Inland Revenue will add a further £28.20 to the pension fund whether or not the individual pays tax.

This type of pension is being used by housewives and carers as well as for the benefit of children who do not pay tax, yet can have the benefit of tax relief on their savings. (Higher rate taxpayers can recover an additional 18 per cent (£23.08 in this example) via their tax assessment).

Benefits can be accessed any time from age 50 although, in practice, there is unlikely to be enough in the pot to make it worthwhile at this age.

Up to 25 per cent of the fund can be taken as tax-free cash, with the balance being used to secure a lifetime income, usually through the purchase of an annuity, although this can be deferred, if appropriate, up to age 75 by use of an Income Drawdown Plan.

For individuals who really want to take control of their pension funds, a Self-Invested Personal Pension Plan (SIPP) may be most attractive.

A SIPP does not fall into the Stakeholder category as its charges will be higher, but it provides a gateway to a much wider choice of investments which can be selected by the planholder including shares, property and cash.

SIPPs are frequently used by business owners to buy commercial property - generally the offices or business premises from where they run their business. This allows them to hold an asset which generates rental income for the fund but also provides security for the business. Any growth in the value of the property is tax-free within the fund and the rental payments are allowable against tax as a business expense.

If individuals want to be able to enjoy a reasonable standard of living in retirement, the message is to start saving as early as possible and to take advantage of employer contributions where available.

For those who do not have access to an employer's pension scheme, a low cost and flexible plan such as a Stakeholder Pension is likely to be appropriate.

If adequately funded and coupled with the magic of compound interest over the longer term, you will reduce the likelihood of having to rely on a State Pension Scheme which, as valuable as it is, may not provide the security in retirement which we all want and, hopefully, before age 71.

- Nigel Bourke is proprietor of Nigel Bourke and Co, a company regulated by the Financial Services Authority. He can be contacted at ifa@nigelbourke.co.uk or on (01642) 670307.

Published: 07/05/2003