Personal Finance: Let's see the colour of your money

Mr Blue: A sales manager, aged 50. He earns pounds 40,000 a year and is a member of his company scheme. He is on target to receive a pension at 65 of half his final salary because he did not join the firm until he was 35. Should he start a Stakeholder to make up the difference?

Solution:No. He should stick with his company scheme but must consider making extra payments through additional voluntary contributions (AVCs) to make up the shortfall. If he is forced to retire early he will get even less than half final salary. Most companies offer a good AVC facility and cover the management costs. In a few cases the company AVC can offer poor value so the Government is looking at whether employees like this one should have the option of a Stakeholder-type arrangement for their AVCs. However, time is running out and he needs to make those savings now.

Miss Pink: A graphic artist, aged 30, earning pounds 30,000 annually with a magazine company which contributes 5 per cent of annual salary into her money purchase plan which will pay a pension based on the value of the fund at retirement. She doesn't plan to stay with the company long and, having just bought a flat in London, could do without making her own monthly contributions for a bit. She quite likes the idea of stopping the company scheme and then starting a Stakeholder when they are launched in 2001.

Solution: She must stick with the company scheme. If she stops she is losing the employer's contribution and effectively handing him back some of her salary. Companies have no obligation to re-admit employees who have opted out, should they subsequently change their mind, and most don't unless the circumstances are exceptional.

Mr White: A 27-year-old technician with a photographer. He earns pounds 17,000 annually and pays pounds 20 a month into a group personal pension with a 2 per cent annual charge and a pounds 2 monthly policy fee. The employer pays in 1 per cent annually but does not cover charges

Solution: His company pension is not offering him a good deal. In theory, he would be better off with a Stakeholder, and could consider switching into a low-cost pension now. From 2001, his employer will be forced to improve the value off his scheme to meet the Government's minimum standards. He could wait for that. Whatever he decides, he should raise his contributions to around pounds 1,700 annually.

Mr Green: A self-employed builder whose earnings fluctuate between pounds 80,000 and pounds 15,000 a year. He has been paying into an old-style Section 226 with-profits policy for 20 years but is concerned about high charges.

Solution: He is right to be concerned. These policies were the pioneers of personal pensions and, like the first video recorders, commanded a premium price. By comparison, Stakeholders look like a closing-down sale. He should talk to his financial adviser, but these contracts were also very inflexible. He will almost certainly be penalised for surrendering early.

Worse still, as he has invested in a with-profits policy he may lose a huge chunk of his final bonus. When he, or his advisers, do the sums they will probably conclude that he will lose more than he gains by switching out of his Section 226. He'll just have to live with the high charges

Ms Black: She is taking a career break to bring up her two children aged one and three. The high incidence of relationship breakdown makes her reluctant to rely on her partner for security in retirement. She also has no intention of getting married which means she has no legal right to a share of his pension should they ever split up. Aged 34, she is delighted at the news that non-earners can contribute to a Stakeholder and so is her partner. He has a full pension himself but is worried about their standard of living in retirement and is willing to pay contributions into Stakeholder for her. She can't wait.

Solution: Unfortunately, she will have to wait. The current rules require you to be earning before you can pay into a pension. When Stakeholder arrives, she can pay pounds 3,600 a year and the taxman will help by paying 22p for each 78p she invests.

Ms Yellow: Aged 32, she is a freelance IT contractor earning pounds 35,000 annually who has never made any pension arrangements at all. She finds the whole subject a big turn-off, boring, confusing. She has always been scared of falling prey to a rogue salesman. She has heard something about a new Government pension but is not sure what it means. She'll wait until they are available then consider starting one.

Solution: She has waited long enough. She should begin putting some money away as soon as possible because she is seriously underfunded. The longer she leaves it the more bleak her position becomes. She can usefully start a plan now by opting for a company plan with a Stakeholder guarantee, or one which charges a maximum of 1 per cent annually. Having left it so late, she needs to be putting aside around pounds 5,000 a year to accrue enough for a decent pension.

Miss Grey: She is 21 and is in her first job. Her employer, a market research firm, pays pounds 10,500 annually but does not offer a pension. Her mum says she must start one now.

Solution: Not necessarily. She is young enough to be able to wait for Stakeholder. Her earnings are so low she probably couldn't afford to save very much anyway.

Mr and Mrs Red: They are 55 and 50 respectively have decided to retire early from their jobs with a large plc. They have enough money behind them not to need to take their pensions for a while but could still be paying tax on the income from their life's savings.

Solution: Stakeholder could help them boost their eventual pensions and cut their tax bills. They can both save tax by continuing to make maximum investments into a Stakeholder for five years and then pounds 3,600 annually after that.