Over the past three years the market for personal pensions has grown by 18 per cent per annum. In 1997 alone, this translated into an additional £77 million being poured into pension investment funds, half in the form of single, lump-sum contributions.

The latest Personal Pension Survey shows pension returns are still extremely attractive, reflecting an overall good standard of investment strategy, market growth (at least up to the middle of this year) and low inflation. However, the wide variation in returns shows how important it is for investors clearly to understand what they are buying before they make a lifelong commitment to any single provider.

Investment strategy is not always a high priority and too many people buy personal pension plans because of the preliminary and balancing tax payment deadlines of November 1st and January 31st. The report states "the typical single premium investment of £7,000 is equivalent to the trade-up cost for a good car.

"Many investors are prepared to put a lot of footwork into the selection of a new car which will depreciate to nothing over a short few years, and put far less into the selection of a pension investment which can appreciate against inflation by up to 8 per cent per annum," it says.

Long-term steady performance and some underlying guarantees - especially if you have opted for a with-profit pension policy - are two important features to consider, but "the need to diversify cannot be stressed enough". Demutualisation - which could still occur at institutions such as Scottish Provident and Equitable Life "could have a significant impact on the long-term value of with-profit policies", it says.

"Top unit-linked managers can become laggards, particularly where senior fund management personnel move. This is a very common feature of the Irish market, exacerbated by the fact that fund management teams in Ireland are small."

A good adviser therefore is important - ideally one who is fee-based since paying a fee instead of traditional commissions can add an extra 0.75 per cent growth per annum to investment funds. The accompanying table shows the impact of every extra percentage point of growth on a £2,000 per year lump sum investment. The more competitive the cost of the purchase and on-going charges, the better the long-term yield.

Investors are also encouraged to have their investment strategy customised for their particular needs: "There is nothing wrong with having a portfolio which contains a number of anchor products, those that provide underlying guarantees, and also holding products which invest in pure equity funds without guarantees," the report states.

The report notes that with current funding restrictions (15 per cent of net relative earnings, 20 per cent over age 55 ) and the fact that most people do not begin funding their pensions at an early enough age, "it would be a disaster to base one's retirement planning on personal pension investment alone".