The best ways to save for retirement

For maximum flexibility, before worrying about a pension, it's worth using up your annual individual savings account (Isa) allowance. This rises to £10,200 on 6 April 2010, or 1 October 2009 if you are over 50. All income (above the first 10% of dividend payments) and capital gains on investments within an Isa are tax-free. Better still, there are no time constraints on when you can withdraw your funds should you suddenly need them back.

Beyond that a personal pension offers tax relief on every £1 invested at your personal income-tax rate. What's more, up to 25% of your pension pot can be taken as a tax-free lump sum on retirement. However, the flexibility is poor compared to an Isa you can't access your cash until you reach at least 50, and (for the vast majority of us) 75% of your pot must be used to buy an annuity by the time you are 75. These are currently not great value, so be sure to shop around the best annual income in return for £100,000 for a man aged 60 is £6,340 from Prudential.

For maximum choice over where your pensions savings are invested, consider a self-invested personal pension, or Sipp. These allow you to choose the assets say funds, or individual shares that are bought with your monthly contribution. As such, they are much better for investors who actively manage their pension pots and want to hold, say, single shares or gold within a pensions wrapper.

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However, be careful which provider you choose as Sipp providers charge a little more and the Financial Services Authority is currently investigating 70 smaller providers for evidence of misselling. After all, if you aren't an active investor, there's no point in paying extra for investment flexibility that you won't use. A good bet, if you do want to go down the Sipp route, is the Hargreaves Lansdown Vantage Sipp, which levies no set-up fee. There's also no annual management fee on a number of investments and fees are capped on the rest.