Wealthy individuals should have more opportunity than most to pile up a good pension. But equally their expectations tend to be higher than most people’s. So if they are going to enjoy the same sort of lifestyle they enjoyed during their working life - and they don’t have a generous company scheme to fall back on - they will have to start doing some serious saving.

Tom McPhail, of Hargreaves Lansdown, the independent financial adviser, says people always underestimate the size of pension pot they will need to generate a particular level of annual income. “Someone who wants to enjoy an inflation-linked income in retirement of £50,000 a year would need to build up a pension pot of about £1 million.”

To fund a pot of £1 million at 65 someone aged 35 today would need to be putting away £780 per month, assuming annual investment growth of six per cent. And that is not allowing for the effect of inflation on that lump sum. Taking inflation into account the monthly savings figure would have to be a whopping £1,675.

There are several ways in which people can build up their pension pots. They include putting money into a personal pension or its sister product, a self-invested personal pension (Sipp). They could also top up any company pension by making additional voluntary contributions (AVCs). Finally, they could take out a simple stakeholder pension.

Mr McPhail says: “The greater flexibility introduced into the pensions regime since April 2006 means that both personal pensions and Sipps have become a lot more attractive and accessible. As a result AVCs have largely dropped off the radar, while stakeholders are fairly restricted in their choice and not always as cheap as people suppose.”

Since April 2006, the contribution rules have been made a lot more generous. Each year savers can put into their pension fund an amount equal to their annual earnings. So those earning £100,000 a year could, if they wanted, stash £100,000 a year into their pension.

Very high earners should be aware that tax relief on contributions will only be available up to a ceiling of £225,000 in the current year, and this is the combined total of employer’s and employee’s contributions. They can still put in more than this figure, but they will not receive any tax relief on it.

One of the attractions of pension saving is that people receive tax relief on their contributions. A basic rate taxpayer wishing to put £10,000 into a pension would actually pay £7,800, with the difference of £2,200 being made up in tax relief. A higher rate taxpayer would receive £4,000 in tax relief so would effectively pay £6,000 towards a £10,000 pension contribution.

There is also an overall lifetime limit on the size of an individual’s pension pot, currently £1.6 million. If this figure is exceeded there will be an effective surcharge of 55 per cent on the excess.

So what is the best method of building up a decent pension pot? Mr McPhail is a big fan of regular monthly saving. He says: “There is a lot to be said for the discipline of putting aside a regular amount each month. The compounding effect produced by rolling your money up year after year can produce a surprisingly large lump sum in the long term. For example a £200 a month investment maintained over 35 years from age 30 would, at a fairly modest annual return of six per cent, would produce a lump sum of £370,000 at age 65.”

For those who receive lump sum bonuses he suggests examining the possibility of persuading your employer to put the money directly into your pension as an employer contribution. Your employer will save the cost of National Insurance contributions of 12.8 per cent on the lump sum, and your employer could pass some or all of this on to you.

When it comes to deciding on what investments to put into your pension fund the experts generally advise putting the majority into equities for most of your working life, scaling down your equity exposure as you near retirement. Some individuals may feel comfortable investing directly in stocks and shares, though most opt for collective funds such as unit or investment trusts, which invest in a portfolio of shares. Cash, bond funds and property funds could also be in the mix.

Mr McPhail adds: “This is one area of your finances where you can afford to be fairly adventurous, especially when you are in your 20-s, 30s and 40s. In addition to UK equity exposure you should consider international equities, including emerging markets. Then as you approach retirement you will tend to have less in shares and more in cash, bonds and property.”

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