Investment: Putting extra into the pension means you can take the money and run early

MOST OF us cherish a dream of retiring early and taking the holiday of a lifetime. But we suppress this aspiration in the belief that we could not possibly afford to skip off into the sunset at 55.

The truth is you can do it if you are prepared to put a bit more into your company pension scheme.

With a personal pension, you can make extra contributions depending on Inland Revenue limits. But as a member of an occupational pension scheme, you can make additional voluntary contributions (AVCs).

This may be an in-house AVC scheme run by your employer or a free-standing AVC (FSAVC) scheme operated by an insurer or other financial services provider.

Regulators says last October that visits to a sample of providers revealed that some contracts had been wrongly sold.

People were sold FSAVCs when, if they had opted for the AVC scheme offered by their employer, the company would have matched their contributions.

In other cases, FSAVCs had been sold to members of particularly generous pension schemes, such as the armed forces, and risked overfunding.

The Inland Revenue sets upper limits of the amount of pension and other benefits you can have.

Doctors were recently warned about FSAVCs by the British Medical Association, which says it was concerned about the way the contracts were being marketed.

"Substantial commissions are payable on FSAVC sales and this often influences the sale when cheaper and better options are available," says Simon Fradd, chairman of the BMA Superannuation Committee.

More than a million investors have taken out the free-standing plans since they were introduced in 1988 as a way of giving employees more choice.

It is generally accepted that FSAVC plans are more expensive than occupational AVCs.

Actuarial consultant Bacon & Woodrow showed in a report that someone paying pounds 50 a month into a managed fund for five years would have an accumulated pot of, on average, pounds 3,665 with a FSAVC, and an average of pounds 4,221 with an employer's AVC.

Because employers can buy in bulk, they are able to get better deals than individuals from investment services providers. And there is no commission built in to pay salespeople or advisers. But keeping costs down is not the only thing to consider when investing. FSAVCs have a lot to offer under certain circumstances, independent advisers say. For instance they can offer a wider choice of investment than many in-house AVCs. "Say there is a 25-year-old working for the NHS who is a very adventurous investor," says Julie Lord of Cavendish Financial Management in Cardiff.

"There is only the Equitable Life with-profit fund, which is anything but adventurous." This denies people real control over their investments. Skandia's FSAVC plan, on the other hand, allows you to invest not only in a range of investment funds, but with different fund management groups. Confidentiality is another reason many employees opt for a FSAVC rather than the in-house plan. "Some clients very definitely do not want their employer to know that they plan to retire 10 years early," says Ms Lord.

If you are looking for advice on which form of pension top-up to take, choose an independent adviser who charges a fee rather than relying on commission, she says.

You are more likely to get impartial advice, and this should cut the cost of the FSAVC scheme, because commission earmarked for a salesperson can then be ploughed back into the plan.

David Cresswell of the Occupational Pensions Regulatory Authority says it was sometimes hard for financial advisers to get information about company AVCs, especially where clients did not want their employer to know they were thinking of topping up their pension.

"We're working with the FSA, the NAPF and the ABI to look at ways that information on AVCs could be made readily available to financial advisers," he says. This might be some sort of database.

But Andy Cox, associate at Bacon & Woodrow, says this could spell the death of FSAVCs.

"If they had full information on both types of AVC we would expect the vast majority of individuals to go for the in-house AVC," he says.

But Sarah Modlock of the PIA says it was not the case that one type of top-up was preferable.

There are some very good in-house AVCs, but also some good FSAVC plans, she says. "The key thing is to find out what your options are and get as much information as you can. Don't be afraid to challenge people's recommendations."

Additional voluntary contributions are not the only way to boost your retirement provision.

Personal Equity Plans, and their successors Individual Savings Accounts, are other types of investment you can use.

Although the money you invest in a PEP or ISA is net of tax, you are free to cash them in, tax-free, at any time, unlike AVC contributions. Money invested in AVCs, as with the rest of your pension, is locked away until retirement.

Cavendish Financial Management: 01222 665588; for a copy of the Financial Services Authority's guide to boosting your occupational pension: 0800 9173311; for a list of fee-based financial planners, call the Institute of Financial Planning, and ask for the registry: 0117 9304434.