If you only have a small pension pot, don't panic. There are ways to make a little go a long way.
Small is beautiful, they say, but that clearly isn't true when it comes to your pension.
Hitting retirement with an undersized pension pot is as ugly as it gets, but there is plenty you can do to avoid making a bad situation worse.
Here's how to make the most of a small pension pot.
Small is ugly
The average pension pot at retirement is just £36,800, according to figures from the Association of British Insurers. That's a pretty feeble return, for a lifetime of saving.
It is enough to buy a single man aged 65 an annuity income of just over £2,250 a year, or roughly £190 a month, for the rest of his life.
To put that into perspective, the current average UK full-time salary is £26,500, almost 12 times more.
If he wanted that income to cover his wife or partner after he died, and to rise in line with inflation, he would get even less.
Luckily, most of us should get the State Pension on top, which will be worth £144 a week, or nearly £7,500 a year, once the new flat-rate scheme is launched in April 2016.
That still leaves the average pensioner to scrape by on less than £10,000 a year.
Given these sums, it's vital you make the most of the money you have.
Here's what you can do.
At retirement, most people use their personal and company pensions to buy an annuity, which is an income that lasts you for the rest of your life (rules are different for the dwindling number of final salary pension schemes).
But if you have a small pension pot, you can take it as cash instead.
If you have less than £2,000 in any individual pension, you can convert that into a cash lump sum. If you have debts to pay off, that may be a wise thing to do.
That's because you can take 25% of the money tax free. The remainder will be taxable as if it was your income for that year (so you might want to delay taking it until after you have retired, when your income will have fallen).
You can also cash in 25% of larger pots tax free.
If your combined company and personal pension schemes total less than £18,000, you may also be free to take the whole lot as a cash lump sum.
You may even be able to do this if you've already started to take one of your pensions.
This is called a trivial commutation, to use the technical term, because those wealthy bods in the pensions industry consider £18,000 to be a "trivial" amount of money.
It may be small change to a pension fatcat, but it's big money to you.
The danger is that with smaller amounts, the annuity company's charges will eat up a relatively large chunk of your pot.
And many companies won't even sell you an annuity if you have less than £5,000.
So it may still be better to take the cash instead.
If you take a 'trivial' cash sum from several small pension pots, you must do so within 12 months of each other.
Your first step is to contact your pension scheme administrators to find out how much each pension is worth and whether you can take a lump sum.
The attraction of taking the cash is that you can spend it on whatever you like. The danger is that you will blow the lot in a few years (or weeks), leaving you wholly dependent on the state.
You should use it to clear any debts first. After that, keep some in an easy access savings account or ISA for emergencies.
Shop 'till you drop
If your pensions total more than £18,000, the lump sum route is closed to you. Most people should use the money to buy an annuity, because this gives you the security of a regular monthly income for as long as you live.
Combining all your pension pots into a single annuity should help you secure a better rate, as you will have more money in total.
Don't simply buy an annuity from your pension company, but shop around to get the best deal. This known as 'taking the open market option', and can generate between 5% and 20% more income.
But check whether any of your pension schemes offer special benefits, such as guaranteed annuity rates, which may be better than you can get on the open market.
If it doesn't, it's time to go shopping.
You can compare annuity rates with lovemoney.com.
Make no mistakes
At this point, you need to ask yourself three questions.
1) Do I need a single or joint life annuity? A single life annuity will only pay out while the policyholder lives. A joint life annuity will pay a reduced income to your partner if they outlive you.
2) Do I want my annuity income to rise in line with inflation? An inflation-linked annuity will rise in line with prices every year; the downside is that you could get as much as 30% less income in the first year.
3) Am I overweight, in poor health, or a heavy smoker or drink? If the honest answer is yes, look for something called an enhanced or impaired life annuity, which pays a higher income because your life expectancy is lower.
Those lucky people with larger pension pots of, say, £50,000, £100,000 or more, have other options such as income drawdown or investment-linked annuities.
If you've got much less than that, choosing the right annuity is still a big decision. So you need to give it a little thought.
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