People need to be motivated to maintain and build pension provision.The biggest incentive for contributing to a pension is that the Government also contributes by giving the individual immediate tax relief. The more you invest, the more the state puts in – currently 40 per cent for higher-rate taxpayers and 22 per cent for basic-rate payers. So for every £6 contribution put into a stakeholder pension by a higher-rate payer, the state makes it up to £10. Basic-rate payers must make a contribution of £7.80 for the state to take it up to £10.Clearly this favours the better off, and it would help the Government to achieve its aims if a bigger slice of tax relief was given to those making smaller contributions; these are the people who need the most help and encouragement to fund their retirement.

So, for example, contributions of £2,000 a year or below could get tax relief at 40 per cent, with basic-rate relief on amounts above this. Such a method would also be easier to administer for employers, the taxman and pension providers, as well as more trans- parent for those making contributions.However, financial incentives to save are meaningless for those who simply cannot afford it. The obvious solution is to compel companies to contribute to their employees' personal pensions, but this would not be well received by entrepreneurs and small firms – two groups the Government seeks to encourage.Inland Revenue figures indicate that employers already contribute to around 45 per cent of all occupational and personal pension schemes (although most of this is likely to come from larger firms). If stakeholder could attract a similar rate of contribution, it would be a resounding success. But this will be hard to achieve, as the new scheme may affect more than 500,000 small firms. Some 92 per cent of employers have between five and 50 staff and, until now, have largely ignored the question of employees' pension provision. Ultimately, the Government will have to look seriously at making employers' contributions compulsory.Such a bitter pill would have to be sweetened.

Currently, employers' pension contributions count as a business expense and are therefore offset against any tax liability. This, combined with a reversal of the increased National Insurance contributions levied on firms in the 1999 Budget, would soften the blow of a compulsory contribution – say, 3 per cent of salary.So what are the implications of stakeholder for individuals? If you can afford to set up a scheme for a grandchild, for example, then do so. If your firm has not offered you membership of a stakeholder scheme, and you think it should, suggest it contacts an independent financial adviser, as non-compliance could lead to fines of up to £50,000 for employers and £5,000 for individual directors.But for those who are hard up, pension opportunities are unchanged. Stakeholder may be transparent, annual charges may be better value and the scheme may be tightly regulated, but those who couldn't afford to put money into a pension before are unlikely to be able to do so now. Stakeholder will have to go through many changes before it can benefit those for whom it was intended.Peter Maher is a director and head of corporate benefits at Smith & Williamson, a provider of financial advisory, accountancy and investment management services. Contact 020 7637 5377 or www.smith.williamson.co.uk. The terrorist attacks in America and the threat of war have left many people who are due to go on holiday in the next few weeks concerned about whether it is safe to travel.