MONEY COMMENT
Please Work Five Extra Years!

By Cliff D'Arcy
June 25, 2003

Woolworths Group (LSE: WLW), the high street retailer, held its annual general meeting yesterday. There was good news and bad news for its workforce:

• The good news: Woolworths will retain its final-salary pension scheme for its 30,000 existing staff, with its normal retirement age held at 60. Yippee!
• The bad news: new recruits will have to wait a full year before joining the pension scheme and, worse still, will retire at 65, not 60. Yuk!

At least Woolworths didn't close its defined-benefit scheme (another name for final-salary schemes). This has happened at countless companies, including high-street retailers Dixons Group (LSE: DXNS), Marks & Spencer (LSE: MKS) and WHSmith (LSE: SMWH).

What amazes me is that only 8,500 Woolworths staff (around 28%) belong to their company pension scheme. If you refuse to join an attractive pension scheme like this, you're missing out on a very valuable benefit - typically worth around 15% of your salary. This is because your employer contributes, bears the administration costs and also guarantees your pension.

Here are some things to should consider if you don't have a pension at the moment:

If you're one of the fortunate few whose employer still operates a final-salary scheme, it nearly always makes sense to join it. What you contribute (if anything) is a fraction of the benefit you receive, thanks to tax relief and generous employer's contributions.

Your employer may run (and, ideally, contribute to) a money-purchase scheme (also known as a defined-contribution pension). These include group personal pensions and group stakeholder schemes. If it does, you should seriously consider joining one of these and contributing extra money yourself.

If your employer has fewer than five employees, it is not obliged to offer a pension scheme, not even a basic stakeholder plan. You might be able to convince your employer to contribute to an individual personal pension, but don't count on it. Perhaps you could forego your next pay rise in return for ongoing pension contributions?

If you don't work (for example, if you're a housewife/husband, disabled, a student or caring for elderly relatives), you can still contribute up to £3,600 a year into an individual stakeholder pension. Thanks to tax relief, this will cost you a maximum of £2,808 annually, as the taxman will put in up to £792 every tax year.

You could decide that pensions are too inflexible and you'd prefer another tax-free haven for your cash. Saving for the long-term in an index tracker protected by a tax-free ISA wrapper is a viable alternative to having a pension.

You could decide not to bother saving at all and, instead, put your faith in the good old State Retirement Pension. If this is the route you choose to take, be prepared to keep working until you're 70. Oh, and start developing a taste for freezing fleapits and own-brand cat food now!

More: What Pension Closures Mean To You | Pension Problems Escalate | Beating Pension Scheme Closures