Are we going to be able to afford our ideal retirement? It's common knowledge that most of us don't save enough towards our retirement, so how can we hope to maintain our standards of living once retired?

The lucky ones are people with final salary occupational pension schemes (defined benefit schemes). That type of pension scheme bases retirement benefits on the individual's earnings and length of service within the scheme. The benefits should also be index linked.

The majority of people don't have access to such generous pension schemes anymore.

They have to rely upon saving into money purchase schemes – such as defined contribution occupational schemes, personal pension schemes, self-invested personal pensions (SIPPs), stakeholder personal pensions, or perhaps other savings/ investments vehicles such as ISA's. Unfortunately, some people will be wholly reliant on the basic state pension.

Most insurance companies offer personal pension plans. They all have their own individual charging structures and choice of investment funds.

The difference between the best performing pension plans and the worst performing pension plans can be huge.

The effects of a pension plans underperformance and the charges applying to a particular plan are simple, investors will have to invest more money, retire later or, most likely, retire with a smaller income.

This will potentially have an impact upon your quality of life in retirement.

Some people have several pension plans with different providers.

They may also have paid up plans (sometimes described as 'frozen'), or personal schemes where they have been contracted out of the State Earnings Related Pension Scheme (SERPS), more recently named the State Second Pension (SP2).

Many of the plans were taken out several years ago, possibly by home service companies who no longer have financial advisers servicing clients on a face to face basis.

It's important that the plans are reviewed to ensure that they are still doing a good job.

So, at retirement, what are your options and what decisions do you need to make?

There are several ways of turning your pension fund into regular income for your retirement.

The conventional option is a compulsory purchase annuity. You would normally be able to take a tax-free cash lump sum of up to 25 per cent of your pension fund and use the residue to buy an annuity.

The provider will then provide you with an income for life. If you are a smoker or have a poor medical history, you may be entitled to enhanced annuity rates, therefore receiving a higher income.

Once the annuity has been purchased by your pension fund, you cannot alter it in any way. It is therefore essential that you take professional advice on how to obtain the best retirement options available for your circumstances.

For those of you with larger funds, income drawdown or unsecured pension (USP) has become a popular alternative choice.

You can still take 25 per cent of your pension fund as tax free cash, but with some flexibility on how you actually take your income.

In contrast to buying an annuity, the fund remains invested, therefore you must be willing to take an element of risk with your fund and income.

You can vary the actual income you withdraw within certain limits set out by the Government Actuarial Department.

That could be helpful with income tax planning. Because your fund is still invested, there could be more death benefit options available to a surviving spouse that with an annuity.

The income you withdraw from this type of plan comes directly from the remaining fund and is not guaranteed.

This particular option is complicated and only suitable for a minority of people. Suitability is entirely dependant upon your individual circumstances.

We recommend that you take professional independent financial advice regarding the issues within this article.

For more information or a free fact sheet please call 01226 381001.