Most people who set up a Pension Plan themselves, will set up a Personal Pension Plan and even if you join your employer's scheme, this can sometimes be a Group Personal Pension Plan which is a number of Personal Pension Plans linked together by that employer, with one direct debit mandate paying all contributions.

You need to consider how much you wish to pay into the Pension Plan and this should be an amount you can afford in good months and bad. When you pay money into Pensions you should also consider having a separate emergency reserve, to pay for any unforeseen eventualities, as money put into a Pension cannot be touched by most people until age 55.

You then need to decide where your money should be invested and this will depend on the level of risk you wish to take i.e. how much you want the value of your fund to go up and down.

You also need to select a retirement date. Generally this will be between age 55 and 75 and most insurance companies will allow you to change your retirement date without penalties.

When you reach retirement age, most people take the maximum lump sum of 25% of the value of the policy as this amount is free of all tax. The remaining 75% of your Pension pot is then converted into an income or annuity. At this point you select the most appropriate type of annuity i.e. whether or not it stops on your death or continues after your death, to be paid to your spouse until they die. You can choose to have the income level or increasing each year, this income is normally subject to tax, but no national insurance.

If you die before you retire then the value of your pot at the date of death can be passed to your estate or a better option is to have it paid to your dependants direct by completing a nomination form. This is a good idea as it speeds up payment, as you do not need to wait for probate and also it ensures the payment is free of inheritance tax.

The affects of you dying after retirement depend on the type of annuity you selected.

The Government wish to encourage people to pay into Pensions, so for every £100 you personally pay into a Pension, another £28 will be paid into your Pension by the tax man and if you are a high rate tax payer then you will also be able to claim a personal tax rebate of £23.