Providing for your own pension is not only a sensible financial move, it is now one of the few remaining areas where proper planning can yield significant tax relief. The January 31st deadline before which self-employed people must make their pension contributions if they want to qualify for tax relief in the current tax year is fast approaching. Anyone interested in getting tax relief will need to act quickly.

Pension planning is probably one of the most important personal finance decisions an individual will have to make. Unfortunately, for many people, it is also probably one of the most difficult. There are a number of issues to consider including entry charges and commissions which can reduce the value of the amount invested in the early years, finding the right mix of investments and assessing the performance of different investment funds.

Getting good advice is essential because you will be relying on the growth in the value of your pension investment to fund your lifestyle after you have stopped working. People who are not well versed in the area should seek the assistance of an independent financial adviser before any funds are invested. The tax relief allowed is attractive. It is related to the age of the investor at the time of the investment and increases with age.

Subject to a maximum net relevant earnings level for relief of £200,000 (€253,948), investors under the age of 30 can get maximum tax relief of 15 per cent of net relevant earnings (NRE). Those aged 30 to 39 years can get relief of 20 per cent of NRE. People aged between 40 and 49 years can get relief of 25 per cent while the maximum relief - targeted at those aged 50 years and older - is 30 per cent.

There are a number of key factors which potential pension investors should consider, according to Watson Wyatt consultant Mr Gerry O'Carroll. Investors need to consider the state of the market at the time of their investment, he says. Where equity markets are weak or collapsing just before the investment is made they could get very good value and their fund could show good growth reasonably quickly, he explained. But if the markets are very high when the investment is being made, the value could be depleted at least in the short to medium term if the markets reversed.

The next key decision for the investor is the type of fund required. This mainly boils down to choices between with-profits contracts or unit-linked managed funds, though other possible options include the segregated portfolios operated by both Davy and Goodbody stockbrokers.

Generally the returns to investors on with-profit contracts are not as volatile as on some other types of funds because fund managers can smooth the returns declared from year to year. Each year, the fund manager declares a "bonus" or return to investors based on the performance of the fund - this bonus will be less than the actual return generated. With-profit policies contain in-built capital guarantees.

The main insurers offering with-profit policies are Equitable Life, Standard Life and Friends First. Investors looking at with-profit type investments can distinguish between the companies in a number of ways:

the speed with which each company declares its bonus annually;

the extent to which each-year profits are released every year;

is there a further bonus at maturity and what is the size of this bonus?

Mr O'Carroll explained that different insurers have different policies on how they handle bonuses and terminal payments. For example, if the annual return generated by a fund was 15 per cent, one company could pay 12 per cent that year into the investor's pension plan. But another insurer, which perhaps wanted to encourage investors to hold onto their policies for the long term, could decide to add just 7 per cent to the pension fund that year and would offer investors a larger terminal bonus instead.

In addition, investors should consider the financial strength of the insurer, says Mr O'Carroll.

Mutual companies such as Standard Life have large free reserves - funds which are not required for operations. Pension investors would share in the interest or investment earnings on these funds, he explained.

Unit-linked managed fund investments can be more volatile than with-profit policies, rising and falling with the equity market. Among the main selection criteria investors should apply include:

the type of fund; [SBX]

the approach of the fund manager;

the historical growth performance of the fund management team.

The main decision on the type of fund revolves around the proportion to be invested in equities. This decision depends on the risk profile of the investor and, usually, his or her age at the time of investment. Younger investors will generally be advised to invest a relatively high proportion in equities - offering the best prospect of good growth - and to switch to more liquid investments as their date of retirement approaches.

On the approach of the fund manager the choice is usually between an actively managed fund or one where the fund manager is following either a particular stock-market index or a number of market indices, known as the consensus approach.

The historical performance of any fund manager will depend on the strength and depth of the investment team of the management and the process employed. This is a crucial consideration for any investor (see panel).

The impact of a regular additional one, two, or three percentage points in a return would be very significant on the final value of the pension fund Investors should consider diversifying their personal pension funds between a number of different fund managers. This is because even if a fund manager has shown a good and steady performance, that can change when, for example, senior staff leave the organisation. On commissions and charges Mr O'Carroll explained that investors can protect themselves from having the investment eaten away in the early years by heavy commission payments to the brokers who bring the business to the insurers.

"An investor who is sensible and either goes for a non-commission intermediary or a life assurance company which does not pay commissions such as Equitable Life can remove commission entirely from the quotation," he advised.

Investors with knowledge or expertise of specific markets, sectors or economies could go for specific funds where the investments reflect their area of expertise. For example, if an investor believed the euro was currently very low but would rise he could go for a fund invested in euro equities. But for most investors who will have limited knowledge of the markets, investing in a range of funds which are managed by professional fund managers is the best option. Anyone who wants a general introduction to the whole area of pensions could consult the revised consumer-friendly guide produced by AIB subsidiary, Ark Life.

Called Pensions Made Simple, the guide uses simple language to demystify an area frequently made complicated by industry jargon. It is set out in an easy-to-follow question-and-answer style. The latest edition includes three new sections covering personal pension plans, retirement choices and taxation arrangements.

The guide is available free from AIB branches or by calling ARK Life on 1 800 780 780.