You can be young and have a pension

IF YOU think you really should take out a pension but are scared of being ripped off, take heart. There are plenty of good-value, flexible deals around, set up to appeal to younger people with more uncertain employment and earnings patterns.

The trick is to know which ones are duds and which are worth looking at in detail. And do not automatically assume that a pension is the best place for your savings. You could be better off with a PEP.

Traditionally, personal pension plans had severe penalties for those who stopped contributing during the early years of the policy. This placed a serious question mark against their suitability for young people.

But things have changed. Roland Rawicz-Szczerbo, managing director of Quay Associates, a firm of independent advisers in east London, says: "Most quality pension providers now have products flexible enough to allow for career breaks or job changes. If circumstances change then so can the level of commitment. In view of the tax relief on pension schemes there's nothing to touch them for long-term saving."

The one potential disadvantage of sticking money into a pension is that it is locked away until retirement. If you fear you may be strapped for cash in the foreseeable future then you may be better off with a PEP (a tax-free stock market investment), because the pot of money that has built up within this is instantly available. It is not a good idea to buy a PEP if you think you may need the money within five years - stick to a bank or building society account paying a good rate of interest (egg accounts pay 8 per cent on pounds 1 upwards.)

PEPs are a good bet for women who plan to take a career break soon or who are staying at home with their children. You can always use the PEP money to make a lump sum contribution to a personal pension plan at a later date. You are allowed to mop up any unused tax relief by back-dating personal pension contributions for up to six years. The procedure is complex and you will need to get professional advice.

If you are in work but there's no company pension scheme, then new-style flexible personal pensions plans offered by Virgin Direct, Eagle Star Direct and Tesco (whose pensions are run by Scottish Widows) have low charging structures. These companies keep costs down by not paying commission to middlemen and by dealing exclusively over the telephone.

They are also simple to understand, offering a choice between a small number of investment funds. One of these is an index tracker, which simply mirrors the performance of a UK stock market index.

Furthermore, they are willing to provide limited personal financial advice over the phone at no extra cost - unlike a number of other "direct" sales companies which are only willing to sell you their pensions, without giving advice.

Dealing through an independent financial adviser provides access to a wide range of highly flexible plans but these will have more expensive charging structures because you have to pay the IFA's commission.

There is a useful halfway house between an IFA and a direct sales operation. Bristol-based Hargreaves Lansdown Pensions Direct offers a wide choice of plans from a range of good providers that are usually sold by IFAs. The company will reimburse 80 per cent of the initial commission it receives by paying the extra cash into your new pension. This makes its charging structures competitive with most of the direct insurers, with a much wider choice.

However, it will not offer personal financial advice - except through a separate IFA arm and this will not rebate as much commission. The discount service is worth looking at if you are prepared to spend time working out which pension will suit you best.

Contacts (for low-cost flexible pensions): Tesco, 0845 845 5555; Eagle Star Direct, 0800 776 666; Virgin Direct, 0345 949 494; Hargreaves Lansdown, 0800 850 661. Savings: egg 08450 399 399.

Edmund Tirbutt has been voted Freelance Financial Journalist of the Year by members of the Association of British Insurers.

why pensions are worth it

The big advantage of sticking your spare money into a pension is that your pension contributions get full tax relief. So if you pay 23 per cent tax, one way or another you will get that back. Such generous tax relief isn't available on contributions to other savings schemes providing access to stock market investment.

Don't get hung up on how complicated pensions appear to be. All they are is a way to save money for your retirement. It's just one pot of money, among the other investments you build up. The difference is you cannot get your hands on a pension fund until you retire.

When you choose a personal pension you need to make sure that you have picked a decent performer in the same way you would with any unit or investment trust which invests your money in shares.

The income you get from a pension in retirement is not tax free (unlike income from savings in PEPs and Isas). This advantage is unlikely to outweigh that of receiving tax relief on contributions. Many people are higher rate taxpayers when they are working and enjoy tax relief at 40 per cent but when they retire their income often drops enough to push them back onto basic rate tax at 23 per cent.