Even if you're 50 years old, it's not too late to save for your retirement. My top tip? Don't have a pensions panic!
So now we've run through the main types of pension, you're in a better position to decide whether you need to have a 'pensions panic.'
In summary, if you're a member of a final salary scheme, you've no real need to worry. But you may want to do some extra saving in case the terms of your final salary scheme change before you retire.
If you've made no provision for your retirement and you're just going to rely on the state, I believe you should think about doing something to boost your retirement income. Even if you're relatively old, it's best to adopt a 'better late than never' approach and try to salt some money away for your twilight years.
The only justification for doing nothing is that a small amount of saving may damage your eligibility for means-tested benefits. So the net gain of building a small pension pot - say, £30,000 - might be quite small. That said, means-tested pension benefits are supposedly going to be abolished for new retirees in 2015, so there will be an incentive to save.
Rely on yourself
Of course, future governments might reintroduce means-tested pension benefits, but I think that actually strengthens the argument for saving yourself. The point is, we just don’t know what future governments will or will not do. The only person you can 100% trust is yourself, so it makes sense to save as much as you can for your retirement yourself.
If you have a defined contribution scheme, the question is: 'is your pot big enough?' Or: 'will it be big enough when you retire?'
The thing is, you can actually build a surprisingly large pension pot if you save consistently.
Let's imagine you start saving for a pension aged 30. You save £2,000 a year every year until you turn 60. We'll assume that the stock market grows at 5% a year on average after inflation. That's lower than the historical average (7%.)
On that basis, you'd have a pension pot of £139,000 by the time you were 60. That could give you a pension income of around £8,000 a year on top of your state payments. Not big, but not bad considering you had only saved £2,000 a year. And, don't forget, your annuity would carry on paying out even if you lived to 100!
Here's one more example. Let's imagine you don't start saving for a pension until you're 50. If you save £4,000 a year and retire at 65, you could build a pot of £82,000. As you're retiring at a later age, then you could get an annuity of around £5,400 a year. Again, not great, but better than nothing.
So yes, it's best to start saving for a pension when you're young. But if you wait till middle age, don't despair. It's not too late to make a difference.
One more day
This series is coming to an end. There's one more day to go. In the final article, I'll look at changes that are planned for 2012, and also at alternatives to conventional pensions. See you then!
More: Become a pensions expert in five days - day three | Help! In my forties and still no pension