How much people need to save for retirement is a much debated question. The simple answer is that people should save as much as possible. The more you save the more you'll have to enjoy yourself with in retirement.

With advances in medical science people are now living longer on average than ever before. This poses serious questions about our ability to fund for our retirement and is a challenge many governments all over the world are currently trying to deal with.

There are various methods in which retirement can be funded. The most suitable one in most circumstances is a Pension.

A pension, to put it simply, is a method of saving for retirement. It is differentiated from other methods of saving because our Government offer generous tax advantages to encourage us to make pension provision.

Currently there are 3 methods of funding a pension:

• State Pensions
• Occupational Pensions
• Individual Pensions

From the 6 April 2006 the existing legislation relating to individual and occupational pensions has been removed and a simplified tax regime has been put in place. Therefore there is no longer a distinction between occupational and individual pensions, although employers can still set up a scheme for their employees.

 Financial needs at and after retirement are likely to depend on some of the following factors:

• When and how you wish to retire

When you wish to retire determines the length of time left before retirement and therefore determines how much is needed to save. Also how you wish to retire is important as you can retire outright, or gradually, taking on less hours at work over a certain amount of time. The income needs are different for each of these scenarios.

• Any specific needs you have for capital at retirement

A need for capital at requirement will reduce the amount left in the fund used to secure an income. Therefore it could be important in determining how much you need to save.

• Any liabilities you will need to repay after retirement

Part of a pension fund is available as a lump sum of cash, paid tax-free. The technical name for this is the 'pension commencement lump sum (PCLS). This can be used to pay off any liabilites such as a mortgage or personal loan. If the lump sum is used up soon after retirement is won't be available to supplement income. This could lead to a need for a larger income in retirement.

• The desired level of income and capital during retirement

The need for income and capital during retirement should be less than during the working life. However, there may be some additional income or capital requirements such as holiday's or a new car needed. Usually retirement income is best worked out when expressed as a proportion of your pre-retirement income.

• Requirements for a death benefit to be paid to a spouse or dependant in the event of death

This will be based on specific needs such as how many dependants need providing for and for how long. A spouse or partner's own pension provision will also influence the amount of death benefit that will be needed.

• Specific requirements such as provision for long term care or estate planning aims

The amount that an individual can contribute to a pension scheme is unlimited although there are limits on the amount of contribution that is eligible for tax relief.

The limit that can be contributed that will be eligible for tax relief is £3,600 OR 100% of relevant UK earnings each year, whichever is higher.

Relevant UK earnings can be defined as:

• Employment income (salary, wages, bonus etc).
• Income from the exercise of a trade, profession of vocation.
• Income arising from patent rights.
• Earnings from overseas Crown Employment that are subject to tax.

Tax relief on individual contributions are given at your highest rate of tax and can be awarded in many different ways:

• Employer sponsored schemes have a choice between two main methods of tax relief:

1. Contributions can be taken from the employee's gross pay before income tax is deducted.
2. Contributions may be paid net of basic rate tax. This is called the relief at source method

• Contributions to personal and stakeholer pensions (including group arrangements) receive tax relief via the relief at source method. Contributions are paid net of basic rate tax. Higher rate relief is claimed through self-assessment.

The annual allowance is the maximum amount of benefit that can build up from contributions without incurring a tax charge.

A 40% tax charge applies where the total pension input exceeds the annual allowance. The total pension input defintion depends on the type of pension scheme you have so you should check with a professional if you have any doubts.

The annual allowance for this year is £245,000 and next years limit has been set at £255,000.

 The lifetime allowance was introduced on the 6 April 2009 and limits the amount of savings that can be built up in a tax free environment.

The lifetime allowance currently is £1.75 million for this tax year and next year has been set at £1.8 million. This is the aggregate limit that applies to all pension savings.

Both allowances will be reviewed every 5 years. The amount in any one year cannot be less than the amount set for the previous year.

 When it comes to something as important as this, it's always best to contact a professional advisor and get their expertise.

You may have to pay a fee up front for their time although some will offer you a free consultation. There are a lot of options out there and finding the best one for you is important as if you wait until retirement it'll be too late.

There are plenty of website's to guide you and you can always meet with someone first to ensure you feel comfortable talking with them as you'll have to share a lot of personal information.

Saving for our retirement is important and getting the right pension for you will ensure you can retire with peace of mind and a nice income.