Who's going to pay for my pension if I'm too ill to work?

Thousands of personal pensions are being sold without a firm recommendation that policyholders also buy insurance that will guarantee a comfortable retirement even if they are unable through illness or injury to complete the payments into the policy.

Most of us aren't even aware of these "waiver of contribution" policies. If you already have a personal pension, check the small print. You may or may not have signed up for a waiver without realising it: pension providers usually ask you to tick a box on the pension application form if you want this insurance.

It could be crucially important. Pensions legislation states that you can't carry on paying into a personal pension fund when you aren't working. That includes long-term sickness. A waiver contract will continue to pay all your pension contributions if you fall ill. You should then be guaranteed a pension at your normal retirement date, even if you never work again.

It doesn't cost much - generally about 3 per cent of your monthly contributions. The policy is underwritten in the same way as medical insurance. As women take more long-term sick leave on average during their careers, however, they are often asked to pay a higher contribution than men.

Despite its importance, many pension providers don't ask financial advisers to highlight the significance of a waiver plan when they sell a personal pension. Legal & General says only about one in four of its personal pension customers has taken up the waiver option. At Sun Alliance the figure is one in three.

Peter Timberlake at Legal & General blames the low take-up rate on the public's generally lax attitude to pension planning: "It may be one of those cases where people say 'it won't happen to me'. It is difficult enough to get people to put adequate amounts into a pension as it is and this may seem to be an unnecessary extra expense."

But a growing number of financial advisers believe that the current situation is a pensions disaster waiting to happen. Paul Grant is a London-based independent financial adviser who lobbies pension firms to include waiver contracts on every personal pension they sell. He points out that once people on long-term sick leave realise they have missed out on a crucial protection scheme, they may have a strong case for compensation.

Mr Grant quotes one case where a dentist had not been recommended to take out a waiver contract alongside his personal pension plan. He became too ill to work and successfully sued the independent financial adviser who sold him the policy. He won pounds 97,000. But it is never wise to rely on a ruling in your favour. Better check your policy now.

Some pension companies, however, make it almost impossible to claim even if you do become seriously ill. They do it by giving a very strict definition of what they consider to be a disability that prevents you from working. So any contract that states that the insurance will cover you if you are unable to perform "any occupation" should be avoided. It means that someone working in a desk-bound professional job who then falls ill can only expect their pension provider to consider them disabled if they really can't do any work at all, including non-skilled tasks.

Among the firms which persist with these unfair terms are Equitable Life, Professional Life and Scottish Amicable - three of the five top-performing firms for personal pensions, according to Money Management.

If you are looking for a new pension plan, it makes sense to select a provider that offers to pay your premiums if you are unable to return to your own job.

The situation is improving - pension providers with poor contracts are responding to industry pressure to improve their terms. Scottish Life recently announced a switch from "any occupation" to "own occupation" definitions of disability.

It's also worth checking how your pension contributions will be calculated if you have to claim on the insurance. If you have been paying a fixed amount into your pension and then have to make a claim on the insurance you are likely to find that the money going into your fund will always be fixed at that level. If you are faced with 20 years or more off work, the pension isn't going to be worth much when you reach 60.

If you are in a scheme that demands increased contributions every year you should find that payments made while you are off sick will be increased on the same scale. Sun Alliance has just announced that it has become the first pensions provider to offer guaranteed index-linked rises when any waiver-of-contribution policyholder makes a claim, even if they have only been making fixed contributions into their pension plan. Annual increases will be kept in line with the rise in average national earnings. The catch is that this benefit only applied to Sun Alliance pensions taken out after 1 January 1995.

Isabel Berwick writes for Moneywise Magazine