By Christine Ross Independent Financial Adviser

First of all, a pension is just one way of saving for retirement, and should not necessarily be the only part of a retirement plan.

Another is that pensions are no good because they have fallen in value.

It is better knowing the size of the problem rather than hoping for the best

The pension plan itself is just a type of savings plan with tax breaks.

The value of the pension plan will alter, but that is due to the performance of the underlying pension investments and sometimes the charges levied by the insurance company.

It is possible to invest pension contributions in a wide variety of assets, which can range from cash for the more cautious, right up to international shares for the more adventurous saver.

It is also possible to buy cheap "stakeholder" pension plans so that the charges will not outweigh the benefit of the tax breaks.

UK PENSIONS IN CRISIS Key pension facts and figures at a glance In pictures

Time to plan

Retirement planning should really start with a calculation of how much will be needed to provide the required level of income at a certain age.

In the end it will usually come down to affordability, but it is preferable to have an idea of just how much is required to achieve the stated goal.

Pensions checklist

Calculate how much you will need in retirement Decide whether you want to access money before retiring Choose which type of assets you would like to invest in, depending on your appetite for risk Consider other ways of saving, such as an ISA

It is better knowing the size of the problem rather than hoping for the best.

There are many financial websites that have pension calculators (see link to "full coverage" above in RH column).

Having established how much should be saved, it is important to prioritise retirement planning alongside other financial needs.

For example, there is no point making a large pension contribution if there are outstanding credit card balances that need to be paid.

The interest charged on these is much higher than the investment return that is likely to be achieved in a pension.

It is also important to be able to access some money in the shorter term. Money invested in a pension scheme cannot be "dipped into" for a rainy day.

Saving on your tax

Conventional or "approved" pension plans are popular because of the tax breaks.

This means that each �10 saved costs a basic rate taxpayer �7.80 and a higher rate taxpayer just �6.00.

The pension fund grows tax-free (with the exception of tax on dividends from UK shares).

But pensions can also be inflexible because savings cannot be accessed until at least age 50, and must be taken before age 75 at the latest.

At retirement, 25% of the accumulated pension fund may be withdrawn as a tax-free cash sum.

The rest is used to buy a pension income which is payable throughout your lifetime.

How much to put away

There are restrictions on the level of contributions to a personal pension. These relate to a percentage of earnings and the age of the scheme member.

Contributions start at 17.5% for those aged under 36, and increase steadily to a maximum of 40% of earnings at age 61.

It is possible to save a small amount on a regular basis and to top up with lump sums when finances allow

Since last year it is possible for someone who does not have any earnings to contribute to a pension scheme.

They can make a maximum gross contribution of �3,600 each year and still obtain tax relief at the basic rate.

This means that the maximum contribution would actually cost �2,808 after the tax break.

It is also possible to maintain contributions for up to five years when someone stops working.

The maximum earnings on which pension contributions can be based is limited by the "earnings cap" which is increased each year by inflation. For the 2002/03 tax year this is �97,200.

Your flexible friend

Pensions are now more flexible than they used to be. Most personal pensions allow contributions to be varied and stopped without penalty.

It is possible to save a small amount on a regular basis and to top up with lump sums when finances allow.

There is no magic formula, and only one golden rule - it is never too early to start saving

Charges for stakeholder pensions are limited to a maximum of 1% a year.

Savings may be spread between more than one pension plan as long as the total contributions fall within the maximum limit for age and earnings.

Cheap, simple pension schemes are suitable for almost everyone (stakeholder plans can even be bought for children) and now that there is no requirement to have earnings in order to contribute.

Only those who cannot afford to tie up their savings should avoid these.

Choosing your investments

A pension plan will offer a selection of available investment funds to choose from. It is possible to change your selections from time to time.

Stock-market funds generally make good pension investments, as there is generally a long-term investment horizon.

However, it is important to remember that the values can fall as well as rise, and that investments should be moved into safer investments as retirement approaches.

As a guide, funds should start to be consolidated about five years prior to retirement.

The ideal retirement planning strategy is the one that will fit in with the saver's lifestyle, allowing flexibility of contributions and access to savings when needed.

Don't forget to consider other plans, such as share-savings schemes at work or an individual savings accounts (ISA).

There is no magic formula, and only one golden rule - it is never too early to start saving.

An old rule of thumb is that for every five years of delay, the cost of the pension doubles.

Finally, it is essential to carry out a "financial check-up" every year or two, to reconsider the savings goals, make allowance for any changes and to check that plans are still on track.

Christine Ross is head of financial planning at SG Hambros. The opinions expressed are Christine's, are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.