An annuity is a contract with an insurance company that provides a retirement income - in the form of regular payments - for the rest of your life, though you can choose one that only pays out for a set period of time.

Members of defined contribution pensions, such as company money purchase schemes, personal pensions and stakeholder pensions, can use their accumulated fund to purchase an annuity once they are 55. A defined contribution pension is one where you (and your employer in the case of company pension schemes) have saved into a pension fund where your money is invested during your working life. Finding the right annuity can have a big impact on your retirement income.

Many people take out an annuity with their pension plan providers without bothering to look around. However, taking advantage of the Open Market Option (OMO) could provide you with a much better retirement income so it is definitely worth spending some time searching for the best annuity. Recent figures indicate that the nation's pensioners would be between £3.3 billion and £7 billion better off over the next 20 years if OMO became the norm.

A lifetime annuity involves you handing over all or part of your pension fund to an insurance company that agrees to pay you an income - either monthly, quarterly, half-yearly or annually - for the remainder of your life.

You can choose whether the income stays the same throughout, or has automatic annual increases built in. These increases may be at a fixed rate, for example 3% per year, or the rate of increase may vary according to the rate of inflation. However, the amount you receive in the early years will be lower if you do choose this option.

There are important decisions to make such as whether you want all or part of the annuity to revert to your spouse or civil partner in the event of your death, or whether you would prefer a plan that guarantees payment for a certain time, for example ten years, even if you die within that time.

The value of an annuity is dependent on two factors - the size of your pension pot and the annuity rate offered by the insurance company providing the annuity. In other words, the value of your pension - the annuity rate - will give you the amount you receive on an annual basis. The annuity rate you get is therefore crucially important and will affect the income you receive for the rest of your life.

It is worth knowing that annuity rates are calculated using numerous factors including interest rates, age and gender. The older you are when you take out an annuity, the more you are likely to get as a result - because your future life expectancy is less.

If you are suffering from certain medical conditions, such as high blood pressure or diabetes, you may qualify for an impaired life annuity, which pays out a higher income on the basis that you have a reduced life expectancy. And if you are overweight or a regular smoker, you could opt for an enhanced annuity that pays a higher income in a similar way.

With both types of annuity, the payments you receive can be substantially higher than the norm - making it well worth looking into. However, you will have to provide a doctor's report if you want to take this route.

Income Drawdown enables you to take an income from your pension fund while the fund remains invested and continues to benefit from any fund growth though it can also suffer if markets fall. You generally need a substantial fund value, say at least £100,000, for this to be an option. The risks involved also make it crucial to discuss this with an independent financial adviser before taking the plunge.

If you have a small pension, or a selection of small pensions, worth no more than £18,000 in total and you are aged between 60 and 75, you can also convert them into cash - 25% of which is tax free - using a process called trivial commutation.

One of the first things to consider when deciding whether to choose a pension annuity is the details of your pension scheme or pension schemes.

Some people have a range of pension schemes with various amounts saved, different features and numerous benefits. When approaching retirement, pension providers typically issue an annuity quotation.

When you are nearing retirement, your pension provider may send you a quotation regarding your pension scheme. If you are not automatically sent a pension quotation, you should ask your pension provider to send you one.

When a pension provider issues an annuity quotation, there could be a large amount of difference between the amount offered, and the annuity income that the pension holder could actually receive.

It is worth keeping in mind that retirement income can change in value, due to the way economic and investment markets change and affect pension funds.

Numerous people are entitled to the state pension. Even though you are planning an annuity, you should keep in mind the retirement income that will come from your State Pension benefits. Other forms of retirement income can include other pension schemes, savings and investments.

To find out what level of State Pension you are entitled to, please download the BR19 form.

The BR19 is a request for the government to provide you with a pension forecast for your state pension.

Other types of pension scheme linked to the state pension include the graduated pension and the state earning related pension. Both of these fundamentals should be included when seeking a pension forecast. Some workers may have chosen to opt-out of receiving their state pension, a decision known as contracting out.

Once you have determined that you wish to purchase a pension annuity, it is time to work out exactly which annuity suits your retirement needs. This will depends on your own needs and the needs of your family.

Many people choose to take a Pension Commencement Lump Sum and use the rest of their pension fund to purchase an annuity.

This block of cash is tax-free and can be spent, saved or invested as the policyholder sees fit.

Once you have worked out how much money remains with which to purchase your annuity, you can choose the frequency at which annuity income is paid.

Usually, pension annuity payments are made on a monthly, quarterly, half-yearly or annual basis. A monthly annuity payment is the most common way of receiving pension annuity, as most people prefer this to make budgeting easier, having always been paid on a monthly basis.

An annuity guarantees an income for life so for many people, even following the significant changes to pension’s legislation which has given greater freedom and more options open to those about to retire, this will probably still be the best option available. With many pensions however, their annuity does not have to come from the provider of the scheme that their pension contributions have been paid into.

The first thing to think about is whether or not to exercise the open market option.

If another provider offers better annuity rates, thereby providing a higher pension, the fund can be transferred and the pension then starts immediately with the new company. Scouting around the market for good deals may affect income levels by as much as 30% to 40%.

Joint Life Annuities are suitable for people who have a financially dependent person or persons. A joint life annuity will allow pension payments to be made to this person in the event of the death of the pension scheme holder.

When it comes to a spouse or other older dependant, the annuity buyer decides the percentage of the annuity payable to the dependent.

If the dependent is a child, the income from the annuity continues until a certain age.

Another annuity option is to guarantee then income for between one and ten years, regardless of whether the pension holder dies during this timeframe.

Usually, annuity income is payable for life and ceases when the pension holder dies.

If you have selected a Guarantee period, the annuity payments will continue to be made to a beneficiary or beneficiaries even after your death.

Inflation can erode pension income over time; however there are annuity options to try and prevent this. For instance, you can choose to increase your retirement income on annual basis.

Although annuities are a long-standing financial services product, enhanced annuities and impaired annuities are relatively recent additions to the market.

The basic premise is that due to lifestyle or medical conditions, postcode and occupation an annuity buyer may qualify for a different type of annuity, known as either an enhanced annuity or an impaired annuity.

At this present time, only a small amount of people think that they could qualify for an enhanced or impaired annuity uplift, and do not take advantage of this opportunity. Failing to recognise that you qualify for an enhanced or impaired annuity could mean losing out on significant increases in retirement income.

Boosting your annuity could help you enjoy a more secure retirement, with larger annuity payments. Thousands of retirees could increase their annuity by applying for an impaired annuity that provides a higher income for those in ill health or leading certain lifestyles.

Pensions experts estimate that just one in ten retirees who could qualify for an enhanced or impaired life annuity are actually applying for one.

Impaired or enhanced annuities reward customers for poor health and lifestyle by paying out larger annuity payments.

Qualifying for an impaired or enhance annuity may be as simple as asking your annuity provider to take your medical history into account.

Furthermore, enhanced annuities are available to customers that smoke, are overweight, or suffer from high blood pressure or cholesterol. Impaired annuities may be available to people with serious illnesses or health problems, including diabetes, cancer or heart disease.

Numerous people approaching retirement have never heard of enhanced or impaired annuities.

Once you have filled out a pension annuity application, the retirement specialist will send a number of important documents.

The pension holder should read these documents carefully to make sure that they are the best retirement solution. These documents will include:

• A letter clearly showing which annuity has been chosen and the features and benefits of this annuity.
• A personal illustration showing the annuity income of the pension holder, from different annuity companies.
• A Key Features Document that outlines the commitments, goals and risk factors associated with the annuity chosen.

When economic conditions are uncertain, many people may choose to put off buying an annuity with their pension.

This is known as delaying your annuity. For instance, if a pension fund is linked to an investment fund, and this is performing badly due to current market conditions, many pension holders may wish to defer their pension annuity for a certain period.

Some people may not need the security and regular payments provided by a conventional annuity. In this instance, there are alternatives to buying an annuity, the most common of which are detailed below.

Not buying an annuity may increase income but opens the pension fund to risk.

Pension holders may prefer to use self-investment to maximise income, protect their pension pot for their family, vary their income, generate income in a different way for tax reasons, or simply desire higher value than a conventional annuity can provide.

All of the alternatives to choosing an annuity carry elements of investment risk, and are really suitable for people who can afford this risk. Alternatives to buying an annuity include an unsecured pension, income drawdown, phased retirement, alternatively secured pension and others.

These are occasionally referred to as pension transfer plans. A Section 32 buy-out policy enables you to transfer the funds and benefits of your occupational pension scheme into a private plan without losing the range of benefits available to you in your original scheme. Plus it allows you to make your own investment decisions if you wish in the same way as you can in a personal pension.

Because the investment decisions and choices are made for you with an occupational pension scheme, you can use a Section 32 Buy-out Policy to move to a personal pension plan and enjoy greater choice. However, unlike a personal pension plan, monthly contributions into the scheme are not allowed after the transfer. You will only be able to make a single transfer into the scheme. For this reason they are often used to tap into frozen or existing company pensions.

You need to ask the for the full transfer value from those running the pension scheme you want to transfer out of or you can get an independent advisor specialising in pensions to ask for the transfer values of any schemes you want to move and to organise it all for you.

The main advantage of a Section 32 buyout plan is that it provides a retirement pension with a regular income for life.

The plan is normally based upon the rules set by the trustees of your previous employer’s pension scheme; however the pension fund will be in your individual control. You can choose when you want to start receiving this income and you don’t even need to have stopped working to receive it.

There are two parts to the State Pension:

• The Basic State Pension: Most people are permitted to this once they reach the State Pension Age, which depends on your date of birth but is likely to be between 65 and 68 for anyone who has not yet retired. The amount you receive depends on how much National Insurance you have paid during your working life. Consequently, people who have taken career breaks - such as women who give up work to look after their children - may not be allowed to the full amount though they do have the opportunity to buy more qualifying years up until April 2012.
• The Additional State Pension (also known as S2P or SERPS): This additional pension entitlement is only paid to workers who have paid Employees Class 1 National Insurance Contributions (Nics) on actual or deemed earnings. Those who have been self-employed all their working life will not qualify for this. It is possible to mobilise your stakeholder pension to contract out of the State Second Pension.

In addition to the basic state pension, most people are eligible for the additional state pension formerly known as the State Earnings-Related Pension Scheme (SERPS) before it was reformed in April 2002.

It is now referred to as S2P and is based on your earnings and how much Class 1 National Insurance you have paid.

When a company pension scheme is set up, the employer has two options for his employees relating to the second state pension.

• Employers can choose for his employees to receive their company pension then their state benefits in 2 parts – basic state pension and second state pension (S2P).
• They can decide to contract out of the additional state pension and the benefits from this are then included within the company pension.

In addition to the basic state pension, many people are eligible for the additional state pension, formerly known as the State Earnings-Related Pension Scheme (SERPS) before it was reformed in April 2002.

The second state pension is based on your earnings and how much Class 1 National Insurance you have paid.

If you have a personal pension scheme, you have the option to contract out of the additional state pension. By contacting out, the government will then make a payment into your personal pension scheme on your behalf in place of the additional state pension.

There are billions of pounds of tax-free cash in retirement pots across the country. Because you get tax relief on contributions to your pension fund this money is not easily accessible. The earliest you can get your hands on it is at the age of 55 under current HM Revenue & Customs (HMRC) rules.

You can take 25% of your additional pension (not the basic State Pension) as a tax-free lump sum from this age. This cash is often used to clear outstanding mortgages or to pay for children's college or university fees. But if you do this you'll have less to provide you with an income when you're no longer working.

Those with company pensions need to check the scheme's rules as they may be less generous. Some may allow you to take 25%, but final salary schemes which are fast disappearing may not. With some schemes the lump sum is optional, while with others it's automatically given.

Another option is to take cash out more slowly using what's known as income drawdown. With this option you can choose to take money on a regular basis - monthly, every six months or once a year. You need to ask your pension provider what arrangements it has in place for income drawdown as not all of them allow monthly withdrawals.

The advantage is that more of your pension fund remains invested giving it a chance to increase in value. One drawback is that if the market falls your fund may actually shrink; another is that you are often not allowed to alter the amount you can take on a regular basis, making it less flexible than it appears. Income drawdown is also less common with company pension schemes which may not allow it.

Planning is essential to getting many things right in life and the same applies to pensions. The sooner you start making arrangements to save for your retirement, the better it is. Even a small amount saved regularly will quickly build up to a decent pension pot for when you stop working.

Putting the right plans in place is the best way to maximise your pension, be it a private or company scheme or a combination of the two. If your employer has a company pension plan and is prepared to contribute to it for you, it’s always a good idea to join even if you already have a private pension or want to have a separate one of your own.

The best company scheme is a final salary pension based on how much you earn and how many years you have been with the firm, but these are fast disappearing. Nowadays, most companies have a money purchase scheme which is based on how much you and your employer put in and how well the investments do over the years.

Several factors need to be taken into consideration. As well as giving due consideration to how much you believe you will be able to comfortably live on in retirement, you need to work out how much you can afford to put aside each month for the future. Then you should spend some time understanding the different saving options available to you.

For instance, did you realise you can transfer your pension from your old employer to a new one or into a private pension? However, if your pension comes with guarantees you should generally hang on to it. Pensions are a complicated area so you really need advice from an expert before transferring a pension or making a major decision about your retirement fund.

Having a sufficient income in retirement should be the main financialconcern, as it is obvious that one day you will retire and when you do, you will need an income.

At present there are tax incentives on offer for pension planning, which everyone should take advantage of, including those few who are wealthy enough not to worry about their retirement income.

Even business owners need to prepare for the future, they may think that at retirement they will sell off the business and live off the proceeds, however there are a variety of risks associated to this plan, including the fact that the business may fail, or the proceeds may not provide a comfortable income, at time of retirement.

A major issue in pension planning is that the economy is likely to be very different, but to begin with, the income that you may need should be based on today's prices.

There will be a major difference between your present income needs and your income needs when you retire.

This is because you will not have mortgage or work related expenses, but may have health related expenses.

The tax system maybe very different at the time you retire, but as a general guide a calculator can be used to calculate the extra income you may need in order to pay the tax bills.

Rough guide to tax on your future retirement income is shown in figure 1.

The Minimum Income Guarantee was replaced by the Pension Credit on 6 October 2003. It is a means-tested social security benefit that is designed to provide older Britons with a minimum level of income and reward those aged 65 and over with extra cash to supplement the modest incomes they get from their retirement savings.

Like the State Pension, the Pension Credit has two parts to it: The Guarantee Credit and the Savings Credit. It is possible to receive either component exclusively or get a combination of both.

The Guarantee Credit element provides a minimum level of weekly income that is currently set at £137.35 for single people and £209.70 for couples. The individual applying must be over the qualifying age (which was 60 prior to 6 April 2010 and is now rising to 65 - depending on your date of birth), but can have a younger spouse without it affecting his or her entitlement.

The Savings Credit element is more complicated, but aims to reward those who have made additional provision for their retirement over and above the basic State Pension, resulting in a modest amount of income or savings. Savings Credit is payable from age 65 and depends on how much you have coming in each week.

You should qualify for the Savings Credit element if you live on less than £188.66 a week for you personally or £277.43 a week for you and your spouse (or if you or your spouse is severely disabled, for example).

All forms of income, earnings and savings are taken into account when looking at whether you will qualify for this, although the first £10,000 of savings is ignored. For savings above that amount, each extra £500 is deemed to provide an income of £1 a week. And for those who do qualify, the Savings Credit can boost their weekly income by up to £20.52 for single people and £27.09 for couples.

You can claim Pension Credit whether you are still working or not, and do not need to have paid National Insurance Contributions to qualify. Call the Pension Credit application line on 0800 99 1234. You can also visit Directgov to get a Pension Credit estimate.

A state pension on its own is inadequate to support a comfortable standard of living, but is very useful, and therefore you should make sure that you maintain your entitlement to it.

State pension is received as soon as you reach state pension age, in spite of whether you have stopped work or not. All State Pensions are increased each year with inflation, but they are also taxable. Pensioners also receive an annual winter fuel payment of £150, and get a small tax free bonus just before Christmas.

Everyone who has paid enough National Insurance contributions throughout their working life is entitled to the basic pension.

The full basic pension is £3,510.00 a year, for each person.

A wife over state pension age can receive a basic pension of up to £2,100.80, which is based on her husband's contribution record, as long as he is receiving his state pension.

If the wife is younger than the pension age, and earns less than £2,174.40 then the husband receives the extra sum.

The UK State Pension is comprised of two parts. The first one is the basic State Pension, which at this present time stands at £102.15 a week, although the government has proposed to increase it to one flat rate of £140 for all those who are yet to retire.

An additional pension, which depends on earnings, makes up the second part. Previously known as the State Earnings Related Pension Scheme or Serps, this was changed in 2002 to the current State Second Pension (S2P). This is the bit you can opt out of or 'contract out'.

Contracting out simply involves you joining a private pension or company plan instead of subscribing to the S2P. The scheme shifts responsibility to you or your employer and allows you to receive your second retirement income from your occupational scheme or personal plan instead when you stop working.

However, you can only do it if you are below the State Pension age, are employed and have an annual income above a certain level - £5,304 in 2011/12. Only the additional pension is affected as it is not possible to leave the basic State Pension.

You can find out from your employer if you are already contracted out of the additional State Pension. The main benefit of opting out is that both you and your company will pay lower National Insurance contributions. However, this relief is only extended to occupational pension schemes.

If you contract out with a stakeholder or personal pension, you will not enjoy lower National Insurance contributions. However, you will get a rebate of your National Insurance contributions once a year. The rebate is designed to provide benefits that are similar to the additional State Pension and the money will be paid directly into your pension.

It is also possible to join a stakeholder pension scheme or a personal pension plan without contracting out of your S2P, but you won't get the rebate. Instead, you are likely to receive tax relief on contributions to a private pension scheme.

New rules that concern contracting out of the additional State Pension will come into force in 2012. It will not be possible to opt out of S2P through a defined-contribution occupational pension scheme or a personal pension or a stakeholder pension. Your plan will automatically revert to the additional State Pension if you are still contracted out through these schemes on 6 April 2012.

• Contributions up to £3,600 a year are allowed, regardless of earnings
• Contributions in excess of £3,600 a year are allowed but depend on your earnings
• Everyone can pay these contributions, you, your employer, a relative, etc.
• The limit applies to your total contributions to all pension arrangements within the DC regime, occupational money purchase schemes which have opted in, personal pensions and the new stakeholder schemes
• The Inland Revenue puts limits on the amount you can pay into an occupational money purchase scheme. In general, these are the same as the limits already described for occupational salary-related schemes. In other words, there is no limit on what your employer pays into the scheme, but your own contributions must not exceed 15 per cent of your earnings.
• Contributions are paid after deducting income tax relief at the basic rate -you keep the tax relief even if your income is too low to pay that much tax In practice, your regular contributions to an occupational money purchase scheme are usually much lower than the maximum allowed.

The majority of employers run their own pension schemes, which are commonly known as Occupational pension Schemes. They are the most ideal way to save up for retirement due to the fact that they have further advantages than most other schemes.

• Some schemes are non-contributory which means that you don't have to pay anything at all and your employer meets the full cost of the scheme.
• Schemes ran by employers are usually a package deal, where additional benefits can be received, such as life insurance, pensions for your spouse and even an early pension should you need to retire early due to illness.
• The cost of such schemes may prove to be smaller than those you arrange yourself

Salary Related Pension schemes assure that you will receive a certain amount of pension calculated by a formula. This formula usually depends on the number of years that you have belonged to the scheme and your salary before retirement.

Usually one-eightieth of your pre retirement salary is added to the amount for each year in the scheme.

The other advantages available in an occupational salary related scheme, such as a widow's pension and the tax-free lump sum are worked out in a similar way, through a formula.

Money purchase schemes are a type of 'defined contribution' (DC) scheme. All defined contribution schemes provide you with your own saving pot, and the pension that you receive depends on the following four factors;

• The amount paid into the scheme
• How well the invested payments grow
• How much is deducted in charges
• The amount of pension you can buy with your fund when you reach retirement.
• The contributions made by your employer and you are invested in the stock market.

Your pension can be boosted if your occupational pension scheme's expected retirement income still falls short of the desired amount.

An additional way, in which your pension maybe increased, is by paying extra money into one or more other pension arrangements.

The arrangements you can choose depend on the type of occupational pension scheme you belong to. Extra payments to boost your pension can only be made if;

• The total contributions to your occupational scheme and other pension schemes do not come to more than the maximum allowed for the type of scheme.
• Benefits received from the scheme must not exceed the Inland Revenue limits.

Hybrid schemes provide many benefits, which have been worked out on both a salary-related and a money purchase basis. For example, your pension might be worked out on both bases with you receiving the greater of the two.

Schemes typically have a retirement date at which the pension starts to be paid. You can choose to either start your pension at an earlier date or at a later one, but this will affect the amount received, i.e. if received earlier it will be reduced, and if you start your pension later it may be increased.

At the current time the Inland Revenue rules, allow you to start your pension at any age between 50 and 75. However, the government has floated the idea of raising these ages to 55 and 80. The change could take place gradually during the years 2010 to 2020.

If you run your own business, you could use personal pension plans, or stakeholder schemes, to build up your retirement income. But if your business is set up as a company, you could instead set up your own occupational pension scheme.

There are two broad types of occupational scheme that are especially suited to your situation. These are:

• executive pension plans and
• small self-administered schemes.

Since April 2001 massive changes have been introduced relating to stakeholder schemes and personal pensions. If you do belong to an occupational scheme should you be unable to join an occupational pension scheme, stakeholder schemes and personal pensions are useful as a major way of saving for retirement.

Nonetheless, even if you have joined an occupational pension scheme, there are some circumstances in which you might also take out a personal pension or stakeholder scheme:

• To contract out of part of the state pension scheme. If your occupational scheme is not contracted-out of SERPS, you can use a personal pension or a stakeholder scheme to contract out.
• To top up your occupational money purchase scheme
• Where you have earnings from another source that are not covered by your occupational scheme, such as, earnings for freelance work or from a second job.

Significant changes to the way retirement savings can be made have been introduced since April 2001. One change is the introduction of stakeholder pension schemes. Another is the new 'DC regime'.

The DC regime is a single system for making payments to all the following `defined contribution' (DC) pension arrangements:

• Stakeholder schemes
• Personal pensions
• Old-style personal pensions called retirement annuity accounts
• Occupational money purchase schemes - but only those schemes, which opt into the new regime. You must work for the employer running the scheme to be eligible.

With all defined contribution schemes, stakeholder schemes, personal pensions, retirement annuity contracts and occupational money purchase schemes, everything that is paid into the scheme is invested. With most schemes, you invest in one or more funds run by professional fund managers. How well the invested contributions grow is the single most important factor that determines how much pension you will get. However, is something that cannot be predetermined.

Any form of long-term investment is suitable for retirement saving. However, stakeholder and personal pensions have the edge due to their tax advantage. However, all pension arrangements tie up your savings until at least age 50 and restrict the way you can take the benefits.

So, should you want more flexibility, choose alternative investments, such as individual savings accounts (ISAs) which combine flexibility with tax advantages.

The Government developed stakeholder pension schemes in response to the lack of good-value pension plans available to people who could not join an occupational pension scheme through their work.

In the past, the only alternative if there was no scheme at work or if you were self-employed have been personal pensions that have consistently been found to be inflexible and costly.

It used to be the case that you had to take the benefits of an AVC or FSAVC scheme at the same time you took benefits from your main occupational scheme.

However, since 30 June 1999 onwards, benefits can be taken at any age between 50 and 75, regardless of whether you have started to take a pension from your main scheme. You do not have to retire from work to start taking benefits from your AVC or FSAVC schemes.

If your pension is to be derived from a defined contribution scheme, your pension at retirement will normally be provided by using your pension fund to buy an annuity.

An annuity is an investment where you swap a lump sum - in this case your pension fund (after deduction of any tax-free lump sum) - for an income, in this case a pension payable for the rest of your life.

There are numerous types of annuity. Your decision depends on the type of pension you want for yourself and for anyone who is dependent on you.

As an alternative to buying an annuity, you could leave your pension fund invested and take an income direct from it. Even if you go down this route, under current rules, you will still have to use the remaining fund to buy an annuity by age 75 at the latest (possibly to be increased to age 80).

There are billions of pounds of tax-free cash in retirement pots across the country. Because you get tax relief on contributions to your pension fund this money is not easily accessible. The earliest you can get your hands on it is at the age of 55 under current HM Revenue & Customs (HMRC) rules.

You can take 25% of your additional pension (not the basic State Pension) as a tax-free lump sum from this age. This cash is often used to clear outstanding mortgages or to pay for children's college or university fees. But if you do this you'll have less to provide you with an income when you're no longer working.

Those with company pensions need to check the scheme's rules as they may be less generous. Some may allow you to take 25%, but final salary schemes which are fast disappearing may not. With some schemes the lump sum is optional, while with others it's automatically given.

An alternative is to take cash out more slowly using what's known as income drawdown. With this option you can choose to take money on a regular basis - monthly, every six months or once a year. You need to ask your pension provider what arrangements it has in place for income drawdown as not all of them allow monthly withdrawals.

The advantage is that more of your pension fund remains invested giving it a chance to increase in value. One drawback is that if the market falls your fund may actually shrink; another is that you are often not allowed to alter the amount you can take on a regular basis, making it less flexible than it appears. Income drawdown is also less common with company pension schemes which may not allow it.

Pension credit was introduced in 2003 in a bid to lift the poorest retired people out of poverty. This is a means-tested benefit, which means your income and savings are taken into consideration.

It is divided into two parts: Guarantee Credit, for those who have reached the minimum qualifying age and Savings Credit, for people aged 65 or over. While the former tops up your income to a guaranteed minimum level set by the government, the latter is aimed at "rewarding" those who have saved for their own pension during their working life.

To find out more about Pension Credit and how it could affect you, take a look at the following guides:

Up to a third of all pensioners in the UK are entitled to one or both elements of Pension Credit. However, up to 1.6 million people- equivalent to one in three - who are entitled to receive the credit are not claiming for it, according to Age UK.

Pension Credit could top up your weekly income to a definite minimum of £137.35 if you are single and £209.70 if you have a partner. In addition a weekly amount of Savings Credit may be added if you are aged over 65. Single people can get £20.52 and those with a partner can get up to £27.

If you are single and make up to £188 a week or earn no more than £277 a week and have a partner, you may still qualify for the Savings Credit. You may also qualify for extra money if you are disabled, receive carer's allowance or have housing costs such as mortgage interest payments to deal with. These figures are revised annually and apply to 2011 up to April 2012.

However, changes to the state pension age are likely to affect the Pension Credit qualifying age and the amount. The minimum age for men to start drawing their state retirement income is currently 65. This age also applies to women born on or after 6 April 1950. But the government is planning to increase this to 66 by April 2020. You will still be able to claim even if your partner is under the qualifying age.

It all varies on how much you receive at the moment, essentially you can expect to receive £102.10 per week if you are a single person, or £155.80 per week if you are in a couple. If your basic income is lower than theses stated incomes, then you can expect to have it topped up to meet them. In addition to this you could receive 60p for every £1 of private income that you get.

Up to a third of all pensioners in the UK are permitted to one or both elements of Pension Credit. However, up to 1.6 million people- equivalent to one in three - who are entitled to receive the credit are not claiming for it, according to Age UK.

Pension Credit could top up your weekly income to a guaranteed minimum of £137.35 if you are single and £209.70 if you have a partner. An additional weekly amount of Savings Credit may be added if you are aged over 65. Single people can get £20.52 and those with a partner can get up to £27.

If you are single and make up to £188 a week or earn no more than £277 a week and have a partner, you may still qualify for the Savings Credit. You may also be eligible for extra money if you are disabled, receive carer's allowance or have housing costs such as mortgage interest payments to deal with. These figures are revised annually and apply to 2011 up to April 2012.

However, changes to the state pension age are likely to affect the Pension Credit qualifying age and the amount. The minimum age for men to start drawing their state retirement income is currently 65. This age also applies to women born on or after 6 April 1950. But the government is planning to increase this to 66 by April 2020. You will still be able to claim even if your partner is under the qualifying age.

You simply calculate all the income that you receive from pensions and earnings, then, add them to any savings that you are receiving money from, including; Peps, Tessas and Isas.

First £6,000 of savings
The first £6,000 of your savings is not taken into account, however if you have over £6,000, then the government assume that you receive £1/week/£500 of your savings or investments.

Any income that you receive on a yearly basis (for the sake of calculation) can be disqualified.

In addition to this you can ignore some other benefits that you may receive, such as; attendance allowance, disability living allowance, housing benefit and council tax benefit.

If you are under 65, then you must notify the Pension Service immediately of any change to your income.

For example in you start a part time job, or cash in a pension, also you will need to inform them if your savings or investments grow or decline.

If you are over 65, you will only need to disclose information on your income, once every 5 years.

The first course of action is to get the decision looked into again, you must do this within one month of receiving the letter to tell you how much you can get. If the new decision comes back and you are still not happy, then you can appeal the decision in front of an independent tribunal.

You must put your grievance in writing, stating what part of the decision you are unhappy with, and why you are unhappy with it.

This must again be done within one month of receiving the revised decision.

The money can be paid into a bank, building society, or post office account, or it can be via an order book, it is quite flexible.

Usually this is done weekly, however if your pension credit is less than £1/week it will be paid quarterly, and if it is less than 10p/week you will not receive it unless it can be combined with another benefit.

If you apply before October 2004, the pension service will backdate money owed to you from October 2003.

With a personal pension, you pay standardized monthly amounts or a lump sum to a pension provider who invests the money on your behalf. The fund is usually run by a financial organisation such as a bank or insurance company.

If you are a confident investor, you can make your own decisions where to put your retirement savings by opening a Self-Invested Personal Pension (Sipp). Sipps can be opened with an independent financial advisor, stock broker or pension provider.

Whether or not a personal pension is right for you depends largely on how much you can afford to save for retirement and how much income you can expect from any other pensions.

If, however, your employer offers a company pension scheme or a stakeholder pension scheme into which it makes an employer contribution, you will usually be better off increasing your contributions to this fund.

Saving into a pension has tax advantages too. Your contributions are free from basic rate tax at 20% and higher rate tax payers can claim back the extra they pay on their tax return.

If you are working for a company that has five or more employees, the company has to by law offer you access to a pension. However as an employee, you are eligible to pay into a personal pension if:

• you are working for a company that does not provide an occupational pension
• your company provides a pension scheme but you are not a member of it

If you are self employed, noticeably it is up to you to plan financially for your retirement. With no company pension scheme and only the basic state pension (you will not be entitled the additional state pension scheme) it is a good idea to think about taking out a pension scheme.

If you are self employed, provided aged between 18 and 75, you are eligible to pay into a personal pension plan. The flexibility of a personal pension is often ideally suited to the self employed as earnings are not always as regular and consistent as those of a company employee.

You are entitled to the same tax relief on your personal pension premiums as employees however tax relief may have to be claimed it back at the end of the tax year through your tax return.

Some pensions for self-employed people may also offer sickness protection built into a pension, which may be worth looking at (the cost is usually around 5 percent extra of the total premium).

Following the changes to pensions legislation effective from 6 April 2006, (or A-Day) many of the rules governing tax on pension funds and tax relief on pension contributions are different.

The existing 8 separate sets of rules are replaced by one simple set of regulations which apply to all types of pension.

Strict limits on percentage of earnings had always applied that could be paid into pension schemes as tax relief was granted on contributions. However under the new rules, up to 100% of earnings up to the annual allowance may be paid into pension a scheme and will be exempt from the new annual allowance tax charge. The annual allowance starts at £215,000 in 2006 and will be increased to £255,000 over five years. Importantly, tax relief will be available on pension contributions up to 100% of earnings up to the annual allowance.

There are numerous types of pension funds out there, and a large number of different providers (banks, building societies, friendly societies, unit trust managers as well as insurance and life offices usually offer personal pensions) so it has become quite common for people to transfer their pension funds in order to find better investment performance or service.

Nowadays a number of employers offer pension arrangements known as group personal pension plans. Group personal pensions (GPP) are a collection of individual personal pension plans grouped together by the pension provider.

GPPs are similar to personal pensions, and are covered by the rules for personal pension plans (PPP). These were introduced in July 1988 as a substitution for the Retirement Annuity Contract.

When an employer arranges for a pension provider to set up a GPP, you may occasionally benefit from lower fees than those for individual personal plans, which means that more of your money is invested in the pension. With this type of pension the fund belongs to you and your employer normally contributes to the scheme.

Also known as a works pension, company pension or superannuation, occupational pensions are private pension schemes run by some employers for their employees.

The scheme will be run by its trustees and often provides life insurance as well as pension benefits. Occupational pensions are governed by the Occupational Pensions Regulatory Authority (OPRA) and must comply with certain regulations.

Occupational pensions are paid on top of any basic State Pension. These pension schemes work under a different set of rules to a personal pension.

An occupational pension may either be contributory where members contribute to the fund or non-contributory, which is paid for by the employer.

In the UK an estimated 8.5 million people have a final salary pension scheme. Final salary schemes are also known as defined advantage schemes.

With this type scheme, your pension will be a set percentage of your final salary depending on length of service with the company. The pension received will be based on a fraction of the money taken into account by the scheme at retirement. The size of the fraction is depends upon your length of service.

The wide range of common used fractions is one-sixtieth or one-eightieth for each year of service.

For example, anybody in a final salary pension scheme based on sixtieths between the ages of 25 and 65 would be entitled to a pension of two-thirds of their final salary (this is the maximum permissible).

Your employer may offer what is called a "defined contribution" or "money purchase" scheme. If you are a member of a money purchase scheme, your employer may pay a specific amount into the pension for you or they may contribute a percentage of your salary.

You may also be required to make contributions yourself, depending on how the pension scheme is designed.

The payments will be put into an individual pension fund, as opposed to a collective pension fund, as is the case with a "final salary" scheme. When you reach retirement, your pension will be based on the value of that fund. If the stock market has fallen and your fund falls in value, your employer is unlikely to make up the difference.

These days a number of employers offer pension arrangements known as group personal pension plans. Group personal pensions (GPP) are a collection of individual personal pension plans grouped together by the pension provider.

GPP’s are similar to personal pensions, and are covered by the rules for personal pension plans (PPP). These were introduced in July 1988 as a replacement for the Retirement Annuity Contract.

When an employer arranges for a pension provider to set up a GPP, you can occasionally benefit from lower fees than those for individual personal plans, which means that more of your money is invested in the pension.

With this type of pension the fund belongs to you and your employer usually contributes to the scheme.

If you work for a company that has five or more employees, then the company has a legal obligation - if they do not offer an existing pension to their workers - to provide you with access to a stakeholder pension.

Some employers will also throw in their own contribution to the scheme on top of any contributions you make yourself. Usually, these are called 'employer-sponsored' schemes.

The employer is effectively offering you free money here, so it might well be worth taking advantage of, even if you have pension provision elsewhere.

Wrap accounts, or platforms, are becoming increasingly popular with UK pension savers. Recent research indicates that nearly half of pension providers and 37% of financial advisers predict that more than £300 billion of assets will be held on wrap platforms by the end of 2012, up from £120 billion today.

Wrap accounts allow you to centralise your personal pension and investment portfolios. In theory, you can put any type of investment into a wrap, including ISAs and personal pension plans such as Sipps.

However, some providers impose restrictions so it is worth checking these first before opening an account. Once the account is up and running, all your holdings can be seen in one place, giving you a complete portfolio view.

As well as what you are allowed to hold within your wrap account, it is a wise plan to ensure what the fees are before choosing a provider. In most cases, you pay an administration fee on the account, but benefit from lower charges on the investments you make within the wrap.

Providers of wrap platforms include Fidelity FundsNetwork, Cofunds available through a broker or independent financial advisor (IFA), Skandia, Standard Life and Hargreaves Lansdown. However, most less experienced investors find it preferable to take professional advice before taking the plunge.

Wrap Accounts are a method of pension investment that has only recently become available to people in the UK . The concept is by no means new, and wrap accounts are popular in America , New Zealand and South Africa . Several have now been launched in the UK.

Wrap accounts enable private investors to centralise their personal pension and investment portfolios into one place. However, they are not investments themselves, and the investor does not make money. Instead, the provider holds and sometimes manages investments. Wrap accounts generally allow investors to take full advantage of all tax benefits with their investments, including ISAs, PEPS, and personal pensions. Wraps have three major components: tax wrappers, any investments, and a front-end system from which people can access investments.

A pension transfer is the process of transferring or switching the fund you have built up in one pension scheme to another. You may wish to do this because you are changing jobs, for example, or simply because you are unhappy with the benefits, performance, fees or security of your current pension scheme.

If you have a number of pension schemes, you may also wish to transfer them all into a Self-invested personal pension (Sipp) to make them easier to manage. But always make sure you know what you're giving up before moving to a new pension scheme.

To transfer your pension you will need to write to your current pension scheme administrator requesting a transfer value analysis. The way the transfer value calculated will depend on the type of pension involved.

If you are transferring from a final salary pension, for example, the transfer value will be based on an assessment of the amount of money you would need to contribute (at the time of the transfer) to provide you with your pension entitlement under the final salary scheme.

Take care before transferring a final salary pension as these often come with valuable guarantees. Before moving, make sure the new scheme offers better benefits and higher guarantees.

However, if you are transferring from a money purchase pension, the transfer value will be calculated based on the current value of your contributions. A transfer may be worth it if your new pension scheme is more generous than the old one and it allows you to use the fund to 'buy' more years of contributions and advantages associated with them.

As a general rule, it is only really worth transferring if the value of the fund is at least £10,000. You shouldn't transfer it if your current pension has guarantees which appear generous to you compared to the new pension.

Pension transfers can be a highly complex area as there are many issues, including what type of pension you are looking at switching from and whether any transfer charges imposed will outweigh the benefits, to consider before deciding whether a transfer will benefit you. As a result, it is a good idea to take professional advice before making a pension transfer.

There are numerous reasons as to why you may wish to transfer your current pension to a new or different scheme.

It could be that you have decided to change your job – often seen as the most beneficial time to change pension schemes – or you may be unhappy with the benefits, performance, fees or security of your current pension scheme.

To transfer your pension you will need to write to your current pension scheme administrator requesting a statement of transfer value. Within 12 weeks of making the request you will be given a transfer value for your pension, which will be guaranteed for 3 months.

You can collect your pension when you reach Normal Pension Age, normally 65. You can start your pension after NPA, and receive a greater pension. Some people also choose early retirement, depending on their agreement with their employer, and this may reduce the size of your pension payments.

How much money you will have in retirement depends on the type of pension scheme/s that you hold. Relatively speaking, the amount of pension you get will depend on how long you have been paying into the scheme. The amount of pension payment you receive will depend on the size of your pension pot and the success of your pension fund.

Final Salary Pension schemes. If you have a final salary scheme, your pension at NPA will be calculated as: 1/60 or 1/70 x Final Pensionable Earnings x Pensionable Service.

Many people may wish to retire early by choice, or have to stop work due to ill-health or redundancy.

This is known as early retirement, and can have an influence on both State Pensions and Personal Pensions. It’s important to know how retiring early could affect how much money you have to live on.

Many people prefer to defer their State Pension, allowing them to earn extra state pension or a single taxable lump sum. There is no need to retire when you reach State Pension Age, and deferring your claim is common practice.

Additionally, it is also possible to stop claiming State Pension after claiming it for some time. The age at which you retire from employment does not affect when you can start to draw State Pension.

Retirement age will depend on the pension holder and the pension scheme they hold. For instance many employers have a specific retirement age listed in their contracts. Compulsory retirement age is becoming less common, and are unlawful unless it can be justified.

However, there is a national default retirement age of 65.

This allows for compulsory retirement over this age, so long as employees have the right to request working beyond retirement age. Pension Age, sometimes abbreviated to Normal Pension Age (NPA), depends on your pension scheme.

This refers to the age at which the employee can draw their pension without losing any benefits.

You can retire at any time, but you can only claim State Pension when you reach State Pension Age. Currently, in the UK this is defined as 65 for men or 60 for women. However, the State Pension Age will increase from 60-65 for women between 2010 and 2020, and from 65 to 68 for both men and women between 20204 and 2046.

Many people lose touch with their pension scheme, especially if they have moved between jobs regularly. Some may also find it hard to find out pension information. In this instance, a facility called the Pension Tracing Service can often help.

Your tax office needs to know about your income when you retire or reach State Pension age. This is to make sure that each pensioner receives the right tax-free allowances and also pays the right amount of tax.

More often than not, each tax office will make contact before retirement if they hold date of birth details. When this happens, the tax office:

• Sends Pension Coding Form P161 in the month before State Pension Age. This asks questions about income, pension income, employment status and further information affecting tax.
• To pay the right amount of tax in retirement, you should fill in this form and return it to the tax office. This will help you to avoid paying too much tax on pension income, savings and interest.

Upon reaching State Pension Age, there is no further need to make National Insurance contributions. However, being retirement means you still have to pay income tax, and this includes pensions and state pensions if your total exceeds the tax-free allowances.

If you should be paying tax in retirement, your pension office may have already contacted you.

You should fill in a Pension Coding form P161. It is possible to download this form online and contact your tax office. To work out if you need to pay tax in retirement you should:

• Add up all taxable income
• Work out tax-free allowances
• Deduct tax-free allowances from taxable income

Very few of us remain in the same job from school to retirement, and that can result in several different pension pots. Combining them all together can make financial sense, but only if it is handled in the right way.

The best reason to combine pensions is to gain an improved investment performance and lower charges, ultimately leaving you with more retirement income.

The downside of combining pension pots include exit penalties, expensive pension advice, or a mistake resulting in higher pension charges.

The path you take with your pension scheme will depend on what type of pension you have. For instance, in most cases it is not worth combining final-salary pension schemes. Always be aware when you are moving a pension scheme of the benefits that you are giving up. You may need a high level of investment return to match what is provided by your pension.

It is currently more important than ever to start planning and saving early for your retirement.

According to the Pensions Policy Institute, life expectancy has risen significantly over the past 20 years. For example, a woman who turned 65 in 2005 is now expected to live to the age of 87, while the average 70 year man is likely to live past 84.

Its research also indicates that this trend shows no signs of slowing down, with today’s 37 year-olds (those who will turn 65 in 2035) forecast to live to 87 (men) and 90 (women).

However, a longer lifespan means a long and expensive retirement, which is why it is important to start saving for retirement early.

As people are living longer, the knock on effect on the State pension is that is will not be able to sustain those who are looking to rely on it. At the moment it just about covers the basics with little or no room for luxuries, and with a growing older population it is likely to continue to be worth less in real terms.

Employers have also changed the way they support pensioners. Most companies used to provide liberal pensions to their staff back when a typical employee spent most of their career at one firm. But with the typical employee now likely to spend their career working for several different companies, many employers have decided to cut back on their pension offerings. Everyone is now going to have to start thinking for themselves and taking more personal responsibility when it comes to saving for retirement. You can no longer leave it to someone else. To improve your chances of a wealthy retirement it is important you start putting money aside as early as possible and give your savings sufficient time to grow.

A Self-Invested Personal Pension, or SIPP, is an upmarket form of a personal pension plan that offers savers a variety of attractive features such as increased control and flexibility of their pension fund and its investments. Introduced in 1989, SIPPS were aimed at wealthier individuals, i.e. those with pension funds over £200,000.

However, increasing competition and changes in legislation in recent years has brought charges down and made them more accessible to clients with lower fund values.

Increased accessibility, control and a wider range of investment options such as property purchase are just some of reasons why an increasing number of people setting up a pension for the first time are choosing a SIPP instead of a traditional company pension plan.

SIPP pensions have a variety of advantages over more basic personal pension plans.

One of the major benefits is the greater amount of control and flexibility they offer.

Savers are given the option of choosing and managing their own investments with the help of an independent financial adviser.

Unlike conventional pension schemes, SIPPs offer an extensive range of investment options (there are many types of financial asset can be invested in a SIPP). They also provide investors with tax-efficient savings for when they retire, and offer a greater choice of pension benefits for their dependents or spouse when they die.

In addition, a person who takes out a pension scheme with an insurance company who have badly performing funds will be charged a fee to close that scheme and switch to another company. However, with a SIPP contributions can simply be redirected to a better performing fund.

An additional advantage of a SIPP is that it allows people to transfer any existing pension schemes and investments they may have into one pension fund. This is why a SIPP is sometimes refereed to as a pension wrap or wrapper.

By consolidating their retirement savings in one place, savers can benefit from easier management of their investment portfolio and reduce the charges associated with their other pension plans. There are also companies who provide improved terms for larger pension fund investments.

Before any transfers are carried out, it is important for people to check whether there are any valuable benefits in the existing schemes that would be lost on transfer. The costs of transferring must also be taken into consideration.

Setting up a SIPP pension can be done online. A regulated adviser can help in selecting a suitable wrapper, which must be set up with an insurance company or specialist SIPP administrator to provide the pension tax shelter.

Once established, a lump sum, regular contributions or pension transfers are invested into the SIPP cash account. The capital in the account is then used to purchase a balanced spread of investments, with the help of a regulated adviser. This could include planning for a commercial property purchase within the SIPP.

To open a SIPP, investors must be a UK resident and under the age of 75.

Unlike other personal pension schemes, a SIPP can hold a wide choice of investments, which grow to be more or less tax free. However a SIPP with a wider level of investment choices may come with higher charges and therefore it is important to check the charging structure of a SIPP.

• UK stocks and shares including shares listed on the Alternative Investment Market (AIM)
• Overseas stocks and shares quoted on a Recognized Stock Exchange
• Unquoted shares
• Deposit accounts (in any currency providing they are with a UK bank or building society)
• Government securities and other fixed interest stocks
• Unit trusts
• Open ended investment companies (oeics)
• Investment trusts
• Insurance company funds
• Commercial property (such as offices, shops or factory premises)
• Traded endowment policies
• Permanent Interest Bearing Shares (PIBS)
• National Savings products
• Warrants

Investors who earn more than £3,600 a year can contribute up to 100% of their ‘Relevant UK’ earnings into their SIPP in each tax year and receive tax relief at up to their top rate of tax.

However, there is a limit on the total payments that can be made each year (excluding transfer payments). This Annual Allowance, which is set by HM Revenue & Customs, was £245,000 for 2009/10 tax year but is now £255,000 for the tax years 2010/11 to 2015/16.

Any payments that exceed this annual limit are subject to a penalty tax charge of 40%.

SIPP holders can take an income from their pension between the ages of 55 (as of April 2010) and 74, provided they have enough funds in their pot.

Upon retirement, 25% can be taken as a tax free lump sum and the remainder used to provide an annual or monthly income, which is subject to income tax. This can be done by buying an annuity as a form of secured income from an insurance company, or drawn from the SIPP, the alternative is called income drawdown.

Looking at whether a SIPP Pension is a more suitable option than other forms of personal pensions can be tricky. Savers are generally advised to consult with a suitably qualified pensions’ adviser to start with.

Pension advisers will analyse your circumstances and take into account their investment risk profile.

• want flexibility and control of their pension fund
• wish to invest in a wider range of investment options
• wish to consolidate all retirement funds and investments under one pension wrapper
• want more flexibility on drawing out an income from their pension pot
• have specific investment ideas - plans that cannot be met through investing in an insurance company pension fund
• understand the potentially higher level of investment risk
• understand the charges that can potentially be higher than investing into an alternative such as a personal pension

Well established and very popular in many countries overseas such as Australia, the USA, Germany and Japan, REITs or Real Estate Investment Trusts were launched in the UK on 1 January 2007.

The Government's ultimate aim in introducing these with their attractive tax incentives is to encourage further growth in the building of new housing and commercial property by making investment more accessible to everyone.

REITs will provide an opportunity for investors at every level to pay into specific trusts for land or property without the hassle and risk of direct property ownership and management. The schemes should work in a similar way to other pooled investments such as unit trusts or equity funds and shares in the trust may be bought and sold as easily as stock market shares.

The launching of REITs may also make up for some of the disappointment over the Government's u-turn in not allowing residential property to be held within pension funds. It is thought that the flexibility of the REIT structure may allow for residential property as well as commercial to be purchased through a SIPP (Self Invested Personal Pension).

Inheritance tax as we know it was introduced by the Conservatives in 1986, when it was set at the rate of 60%. This rate however was condensed to the slightly more palatable but nevertheless punitive level of 40% two years later.

The tax was intended to hit only the very wealthy and until recently, only a small percentage of estates had any inheritance tax liability.

For those in this situation, there have been a number of legitimate options for tax and estate planning available.

All this is changing however as house prices have spiralled upwards and more and more middle class families are finding themselves dragged into the inheritance tax net. Meanwhile in the 2006 budget, the chancellor has made things even more difficult for those potentially affected by changing the tax rules on many types of trust (in some cases retrospectively rather than simply on new trusts being set up) intended to protect dependents from having to face a hefty tax bill.

There are many reasons why only a very small number of people actually make a will but often, it's simply something that we don't get round to doing.

Whether we don't want to think about it or whether we're making the assumption that things will be fairly straightforward to sort out after we die.

The fact is that making a will and keeping it up to date could be one of the most important things we do in our lives.

Dying without a valid will, or intestate means that rather than being divided according to the deceased's wishes or even simply passing to a spouse or next of kin, the estate will be distributed amongst surviving members of the family under rules of intestacy.

The last century saw great improvements in life expectancy. A woman of 60 can expect on average to live another 23 years, and a man of 65 another 15 years.

However, the number of years we can expect to enjoy without serious long-term illness or disability, has remained remarkably stable at around 59 years for the average man and 62 years for the average woman.

So, as we live longer, we can expect more health problems and, as you might expect, the older we get, the greater the likelihood of failing health.

Many of us will eventually become unable to cope on our own with normal daily activities and will require help and support from others.

Social services might suggest special equipment to make life easier, e.g. grab rails and bathroom aids and services, such as, a home help, meals-on-wheels, care assistance (such as someone calling each morning to help you get washed and dressed), home visits from the community nurse and a place at a day centre.

In 1997, 23 households in every 1,000 in the 75 to 84 age group received home care.

Successive governments have been concerned at the high cost to the state of caring for elderly people, a cost that is projected to increase as the population over retirement age climbs from the present level of around 10.5 million to a projected 16.5 million by 2040.

The previous Conservative government put forward some ideas for encouraging people to plan ahead to pay for their own care later in life, which set the debate going.

This variety of insurance pays out an income - often after a waiting period, such as 90 days, if you become unable to cope on your own.

The income can be used to pay fees to a nursing or residential care home or to provide help in your own home. Since April 1996, the income has been tax-free.

Typically, you'll have a valid claim if you are unable to carry out two or three out of five 'activities of daily living' (ADLs), such as, personal hygiene, dressing, feeding yourself, mobility and continence.

Although aimed mainly at paying for care in old age, this type of plan pays out whatever your age if you meet the disability test. However, bear in mind that you might need care even though you are not so.

Much concern has been expressed about our ageing population and whether the state can continue to provide the present level of support. Some forecasters suggest that either the workers of the future will have to bear much higher taxes than at present or that state help for the elderly will have to be reduced.

This is, however, too simple an analysis.

If your income and/or capital are above the limits for state help, you will have no choice but to rely on your own resources. Family members can be an important source of private care. Currently, one in five men and one in four women aged 45 to 64 is caring for a relative, friend or neighbour; over a third of these are looking after a parent.

Since the NHS and Community Care Act 1990 came into effect in April 1993, local authorities have become largely responsible for providing state support for elderly people whose physical or mental health is failing.

The system as it stands at present works as follows.

The rules for assessing your income and savings are set nationally. Local authorities have some limited discretion, but generally speaking the same rules apply wherever you live.

A vital part of financial planning as you get older is deciding what you want to happen to your wealth when you have died, and then ensuring that your wishes will actually be put into practice.

But even when you are younger, you should give thought to this, especially if you have a family dependent on you. There are two aspects that need to be analysed:

• Setting out your wishes formally in a will
• Ensuring that your assets do not disappear in unnecessary tax bills.

The Labour Government introduced low-cost stakeholder pensions to the public in April 2001.
This was an attempt partly to encourage more people to save for their old age, and also because wide mistrust over pension mis-selling in the 1980s and 1990s had seen many people shy away from pensions as a way to save for the long term.

Stakeholder pensions, with their low, capped one percent fees and - in almost all cases - easy-to-understand structure, are designed to be particularly suited to the self-employed, low-to-medium earners, or anyone not in work but still receiving income (from state benefits, investment income - even lottery winnings).

To broaden its appeal, stakeholder pension contributions can be stopped and started at any time and they feature low monthly contributions (from £20 a month). There are very good tax incentives for paying into a stakeholder pension, however, like almost all personal pension plans, they are taxable when you come to draw them.

In the past, many homeowners were advised to set up endowment policies as an investment in order to pay off an interest only mortgage when the policy matures.

Regrettably, poor stock market returns have led to endowment providers (most of them big-name financial services companies) declaring very low investment returns with little or no bonus payouts.

This has resulted in a situation where a very great number of people are facing retirement having assumed that their mortgage would be paid off by their investment but are finding that this is not the case and instead, they have a shortfall of many thousands of pounds.

Some providers have undertaken guarantees to make up some, or even the entire shortfall and they should have been in close contact with any policyholders that are or may be affected.

Before you decide to move permanently to your overseas property do some research and plan carefully to make sure that you get the most out of your move.

An amazing summer resort may not be so appealing out of season so make sure you know what to expect during the long winter months by spending time there before you move.

How fluent are you in the local language? If you are moving to a country where English is not the first language, start learning the language before you go.

Dealing with local tradesmen; going to the doctor; sorting out your finances and making friends with your new neighbours all require at least a basic knowledge of the local language.