Time's running out, but only for pension firms

PENSIONS should be the last thing on your mind when you are in your early twenties. It's an achievement if anyone under 25 has a savings account, let alone a personal pension.

Yet the pensions industry is hell-bent on making some money out of this group. While new graduates prepare to start work this summer, marketing departments are busy dreaming up ever more compelling reasons why people in their early twenties should get a personal pension. Norwich Union, for example, has calculated that putting pounds 50 a month into a personal pension from the age of 21 could build up pounds 143,000 by the age of 60. Delaying until the geriatric age of 30 would mean you'd only end up with pounds 64,800.

That sounds alarming, but there's no need to panic if you've left pension planning until (shock!) you are over 30. It's likely you'll have a higher salary than you did in your twenties and you may be saving more money each month. You may even be able to put lump-sums into your pension.

And there are alternatives to the orthodoxy that demands that you throw all your spare money into a pension. The argument that suggests that taking out a pension is a great idea also applies to tax-efficient stock market investments. PEPs (and, from next year, ISAs) investing in unit and investment trusts offer an excellent opportunity to save for the long term. By leaving the money invested for many years, it should build up into a tidy sum. This is the power of "compounding" your savings over time.

For example, a couple who could invest pounds 5,000 each per year in PEPs/ISAs between the ages of 30 and 40 would build up pounds 100,000 in a decade. If the money was left invested for the 20 years until their retirement, the effects of compounding should ensure a decent tax-free retirement pot for both of them. And that's in addition to any dedicated pension savings each might choose to make.

The other advantages of PEPs and ISAs are that they are cheap (unlike many personal pensions) and you can get at the money if you need it.

It seems that young people are being wooed by pension providers because the industry is up against the clock. A Green Paper on stakeholder pensions will be published later this year, and these new schemes should start in a couple of years' time. It's highly likely that every worker will be made to contribute part of his or her salary to a stakeholder pension account, as a way of ensuring a minimum level of income in retirement. The new plans won't stop you having another personal or company pension plan as well.

Compulsory stakeholder pension contributions would force people in their twenties to get into the savings habit right away. And as most young workers don't have much spare cash, it seems pretty clear that they will (sensibly) pass up the chance to pay into expensive and inflexible personal pensions as well as their stakeholder fund.

How will the marketing geniuses at the personal pension firms cope with that problem ?

i.berwick@independent.co.uk