How 40% taxpayers can keep child benefit

Pensions consultants Tower Watson appears to have a solution to this common dilemma - a result of today's government plans to axe child benefit for those paying 40% or 50% higher-rate tax from 2013.

Details of the plans are explained in our child benefit cuts Q&A.

Assuming that laws aren't changed on pensions, Towers Watson suggests that someone earning just over the higher rate threshold can take themselves out of the higher rate tax bracket by paying more into a pension.

Paul Macro, a senior consultant at Towers Watson, explains: 'From 2013, some families could find that putting more money aside for retirement increases the cash in their pocket as well as their pension fund.

'The costs of raising children can prevent parents paying as much into their pensions as they feel they should.

'For some, it may now be a question of whether they can afford not to save more. For a family with three children, child benefit can be worth nearly £2,500 a year, tax-free.'

Child benefit is £20.30 per week for the first child and £13.40 a week for each subsequent child. These rates were already frozen for the next three years in the Emergency Budget in June.

In 2010/11, higher rate tax starts once income exceeds £43,875. But Towers Watson reckons increasing pension contributions could also increase disposable income. This assumes that child benefit is withdrawn altogether from all higher rate taxpayers rather than being tapered away.

• More on child benefit cut:
›› How will child benefit cuts hit you?
›› How 40% taxpayers can keep child benefit
›› Calculator: investing child benefit
›› Calculator: Balance your houshold budget

How to increase diposable income AND get a bigger pension

For a couple have three children under 16. This means that their child benefit will be £2,449 a year if they qualify for it. One partner earns £47,500 and has no other taxable income. The other either does not work or earns less than the higher rate threshold.

Currently, the higher earner pays 5% of their salary into an occupational pension, on top of the contributions that their employer makes for them. This £2,375 employee contribution reduces the salary assessed for income tax to £45,125.

Calculator: The miracle effect of investing child benefit

That £45,125 level is £1,250 above the higher rate threshold. This parent is therefore a higher rate taxpayer, so the family would not qualify for child benefit from 2013.

However, the employee could choose to increase the contributions they make to their pension, paying an extra £1,250. If taken as income, this £1,250 would be taxed at 40%. So paying it into a pension reduces the employee's take-home pay by £750.

However, it also means they are no longer liable for higher rate tax on any of their income. Because neither parent would then be a higher rate taxpayer, the family would now qualify for £2,449 of child benefit.

Overall, the employee could therefore boost their pension fund by £1,250 and their family's disposable income by £1,699.

Tower Watson also points out that individuals can preserve eligibility for child benefit by contributing to a personal pension or by sacrificing part of their salary and instead receiving higher employer pension contributions, which do not count towards taxable income.

But don't forget changing tax bands

If tax bands and personal allowance plans remain unchanged, it will not be those earning more than £44,000 who cannot claim child benefit, as it would stand now, but those earning more than £42,375.

Changes in the Emergency Budget in June meant that from April 2011, the income tax personal allowance will rise by £1,000 to £7,475, but so as not to benefit higher rate taxpayers, the 20% tax band will be trimmed.

Currently 40% tax starts at £43,875: a personal tax allowance of £6,475, plus the £37,400 20% tax band. From April 2011, 40% tax will start at £42,375: a personal tax allowance of £7,475 plus a smaller £34,900 20% tax band.

Childcare vouchers

One other way in which higher rate taxpayers could bring themselves back below the 40% tax band is childcare vouchers.

These are an employer supported way of paying for certain types of childcare. If your employer is signed up to the scheme, which not all are, then you can take some of your pay in the form of childcare vouchers tax-free.

HMRC says: 'If your employer provides you with childcare vouchers you will not have to pay Income Tax or NICs on the first £55 per week, or £243 per month. However, if your vouchers are worth more than this, you will have to pay Income Tax and NICs on the remainder.'

So a worker could theoretically bring their salary down by a maximum of £2,916 a year in the eyes of the taxman.

You do not have to use childcare vouchers in the week or month they are provided - they remain valid for up to a year. For example, your childcare costs may be more than usual during school holidays, and you may want to use them then.

But there is a catch here. The benefit available through childcare vouchers is being cut. Director of Finance Online website explains that those in the higher (40%) and additional (50%) tax rate brackets will, from April 2011, be entitled to relief on £28 and £22 exempt income respectively for each qualifying week.

Crucially, those who are already a member of a childcare voucher scheme, or who join one by April 2011, will not be affected by the changes, as long as they remain continuously within the same scheme.

Read more: Pension

Why women are unprepared for retirement

Other women' s husbands call them by endearing pet names. Mine refers to me as 'the walking pension plan'.

He's joking - I think - about his fond imaginings that, since I'm a lot younger than him and a financial writer to boot, I'll be maintaining him in style in his dotage. Well, he can hope.

But I suppose I only have myself to blame, because thanks to a combination of my job and my ingrained northern thrift, I am a fully-fledged pensionista.

Not only do I contribute as much as I can to my own pension fund but, given half an opening, I'll try to convert other women to the joys of retirement planning, too.

Mock my pension fetish if you must - and plenty of my friends do - but now I'm in my 40s I see it as a key part of my age-proofing regime, along with the moisturiser and the Pilates. It's a three-pronged strategy: face, figure and finances.

But there are a whole raft of reasons why women are at greater risk than men of financial hardship in their later years.

The big pension killers for women are unequal pay, taking career breaks to care for children, bereavement and divorce.

Tough economic times, and the threat to many families of losing their child benefit, are likely to widen the pensions gender gap still further, as women are less likely to save and more likely to use their money to make sure their families don't go short.

Dr Ros Altmann, director-general of Saga and a former adviser to No 10, says: 'Women are still very much second-class citizens when it comes to pensions - and what is worse is that it's barely even acknowledged.'

Much of the problem stems from the fact that the foundations of our current pensions system were laid in the postwar period and do not reflect the realities of modern women's lives, juggling work and home.

Recent developments have not helped. Fewer female workers have access to a top-quality final-salary pension scheme at work than men.

Just over a third of women are members of a final salary plan, compared with more than 40% of male employees, and many firms are closing these funds because they have become too expensive to run.

The Government's plans to scale back public sector pensions may be necessary, but they will also have a big impact on women, who make up more than 60% of the membership.

Typically, most women still earn less than their male counterparts, so can't save as much and, as we tend to live longer, we have more years to fund in retirement.

The result is that fewer than half of British women are saving enough for an adequate pension, says research by Scottish Widows. A quarter save nothing.

Ros Altmann: 'Women ares second-class citizens when it comes to pensions'

No surprise then that, according to the Office for National Statistics, the average annual income for a lone female pensioner is just over £13,700 a year, and that single, divorced and widowed women make up a high proportion of the 1.8m retired households living below the poverty line.

No one likes to think it will happen to them, but experts warn even comfortably-off middle-class women could struggle to maintain their standard of living.

'It is easy to be lulled into a false sense of security,' says Professor Karen Pine, of the University of Hertfordshire, the co-author of Sheconomics, a book aimed at helping women gain financial control.

'Many women find that a middle-class lifestyle is much harder to keep up, especially if they have given little or no thought to a pension in their own right.'

But the practical barriers facing women are only one part of the problem. Experts warn there are also psychological forces at play. For while men think of pensions and investments purely in financial terms, for women money is inextricably linked with emotions and relationships.

There are three distinct female mindsets that can sabotage women's pension planning as they pass through the phases of their life: Cinderella Singletons; Money Martyrs and Trusting Traditionalists.

Young single women can morph into modern-day Cinderellas, where they struggle to pay off student debt, and getting on to the housing ladder seems overwhelming.

Instead, they opt out of financial planning, in the hope that their prince will arrive and bail them out.

And, as Amanda Mackenzie, a senior executive at insurance group Aviva, points out, these young women are missing a valuable opportunity to make tax-efficient savings before they take time out to have children.

'There's never an easy time to start paying into a pension for women, as once the student loan gets paid off, there's the deposit on a home to think about and then children. But it is important to make it a priority to save.'

Motherhood often lures women into the trap of Money Martrydom, where they put everyone else's needs ahead of their own.

Research by Scottish Widows shows that family life triggers a 'selfless gene' in women, that prompts them to spend on others, even if it compromises their own long-term financial well-being.

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Mothers are not the only martyrs. Morris says single women who give up work to look after elderly parents can also end up sacrificing their financial future. 'It is great that women take on a caring role, but the price can be high,' she adds.

But, she argues, Money Martyrs could end up being a burden on their children when they are older.

'Adult children may have to help support you financially if you haven't got a decent pension of your own, and they might not be so grateful for the sacrifices you made,' Morris says.

Politicians have belatedly made improvements to the basic state pension system to reflect the fact that many women take time out of the workplace.

For women retiring on or after April 6, 2010, the number of qualifying years needed for a full basic state pension has been reduced from 39 years to 30.

It is a welcome change, but to put it in perspective the basic state pension is currently £97.65 a week, and women who do not notch up those 30 years of NI contributions will receive a fraction of this.

Plus women will have to wait longer to receive it in future, as the female state retirement age is being raised progressively over the next ten years from 60 to 65.

There are longer term plans to raise the retirement age for both sexes to 68. New low-cost pension accounts aiming to help women and lower paid workers to save are being phased in from 2012.

By 2017, all employers will have to automatically enrol staff earning above a certain threshold into a pension scheme. Employers will also have to contribute at least 3% of income towards it.

Guide: How to plan ahead and ensure a richer retirement

But financial advisers say these will still exclude large numbers of women. Tom McPhail, of financial adviser Hargreaves Lansdown, says: 'Women working part-time, or doing a few jobs each paying below the threshold, could miss out.

'It will be an improvement, but there would still be millions of women left without a pension plan.'

Another improvement in recent years is a concession allowing the partners of non-working wives to put up to £3,600 a year into a tax-efficient pension plan on their behalf, but this is not well known.

Which leads us to another vulnerable group - the Trusting Traditionalists; women dependent on their husbands to provide for them in retirement and who have left it too late to build up savings of their own.

As the Prudential's pension guru Vince Smith-Hughes says: 'Relying on someone else's pension is risky.'

The Trusting Traditionalists may believe they are happily married, but divorce in later life can have a devastating financial impact.

As well as this, thousands of widows are being stripped of their financial security because, unbeknown to them, their husband has signed up for 'single-life annuities', a pension which stops payment on the death of the holder.

Says Altmann: 'Women are being left absolutely destitute. Many of these men are loving husbands who would be horrified if they had known, but they don't understand the risks.'

Altmann rightly describes it as a scandal, but it is just part of a much bigger one - that millions of women in this country who work hard all their lives inside and outside of the home are missing out on a decent retirement.

That is why I am not apologetic about being obsessed with my own pension. They should be a much higher priority for politicians and the financial industry.

And I'd love to see magazine editors featuring more finance articles alongside the fashion and beauty, helping readers become women of style and substance.

As Professor Pine says: 'We buy all these age defying-serums, but you can't defy the fact that women need a pension. There's no cream for that.'

Read more: Pension

State workers willpay more for pensions

The Chancellor gave no indication of how much extra it will be, but vowed to protect lower earners and shift the burden on to fat cat bosses.

As part of the reforms, MPs will no longer be entitled to their lucrative – and costly – final salary pensions.

But Mr Osborne revealed that he is keen to maintain a general link to between wages and public sector pensions, which means workers will still be guaranteed a percentage of their salary in retirement.

Such reforms are urgently needed to necessary reduce the burden on the taxpayer, Osborne said.

Because public pensions are 'unfunded', the taxpayer meets the cost in full every year. This annual bill is set to rise to £33bn in 2016.

'We accept that there has to be an increase in employee contributions,' Mr Osborne said.

But he added that any changes should be 'staggered and progressive', so that those on low incomes were protected and the 'highest paid will pay largest contribution'.

Full details had not been finalised in time for the Government's Spending Review today. Mr Osborne said he will base the changes on a final report from Lord Hutton's on-going enquiry into the cost of public pensions.

M. Osborne said: 'Lord Hutton's findings form basis of new deal so that taxpayers don't pay unfairly,' he said. 'We will await full report before drawing any conclusions.'

Dr Ros Altmann, a former adviser to No.10 said the announcements were a 'clear signal' that age of the final salary public sector pension is coming to an end.

She thinks Obsorne will push the system towards a 'career average' model, where pensions are based on a percentage of an employee's average lifetime wage (as opposed to their salary at retirement).

Two weeks ago, the Independent Public Service Pensions Commission, set up by George Osborne and chaired by former Labour Minister Lord Hutton, issued an interim update on its inquiry.

It gave the green light for the Government to push ahead with reforms that could translate into a pay cut of up to 3% for the average public sector worker. It provoked outrage from the unions.

In the longer term, public sector workers may have to accept sweeping reforms of their pensions, likely to include retiring later, a slower build-up of benefits and a move away from final salary schemes.

Read more: Pension

More women face retirement 'poverty'

More than half of women under the age of 50 admit that they are not saving enough for retirement, marking a rise of eight percentage points on last year, according to an annual report by Scottish Widows.

Currently, two-thirds of pensioners living in poverty are women – the report suggests this imbalance could now worsen.

'Women are still very much second-class citizens when it comes to pensions - and what is worse is that it's barely even acknowledged,' says Dr Ros Altmann, director-general of Saga Group and former adviser to No.10.

'Millions of people, but particularly women, are at risk of poverty. We have a real crisis in this country.'

Women are typically left at a disadvantage when it comes to saving for old age due to unequal pay, taking career breaks to care for children, bereavement and divorce.

And with university fees set to rise to around £6,000 a year, this could get worse thanks to increased personal debt.

Many young women are inheriting the mistakes made by their parents, says Ian Naismith, head of pensions at Scottish Widows.

'The findings paint a worrying picture,' he says. 'Attitudes need to change. The major disparity between male and female saving habits needs to be resolved, or even more women will face poverty in their old age.'

Scottish Widows found that women aged 18 to 29 have typically accumulated £4,800 on average - just over half of the £7,700 achieved by young men - and they are saving just £49 per month, compared to £111 per month for men.

Age of the 'pensionista': Women bury their heads in the sand, says Ruth Sunderland, Daily Mail associate City editor

Pensions Minister, Steve Webb, said that reforms that will auto-enrol all employees into a company pensions will make a significant difference.

He said: 'We know that women aren't saving enough for retirement and this is exactly why we are committed to bringing in reforms that will result in up to 3m more women saving for the first time or saving more in workplace pensions.

'Our actions will ensure that people have the opportunity to save for their retirement on top of a decent and fair state pension.'

Scottish Widows' major report also focused on women aged between 51 and 59, who are in the last chance saloon if they want to have any chance of retiring in their 60s.

On average, they have built up retirement savings - excluding a pension - which they plan to use to pay for their retirement of just £37,642.

If they cashed this pot of money with an insurance company to buy an annuity, which provides an income for life, they would receive just £40 a week.

With no pension and little other savings, millions of women have no option but to keep on working into their late 60s and 70s.

Read more: Pension

Should I top up NHS pension with savings?

Mel Kenny, and independent Financial planner with Radcliffe & Newlands in the City of London replies: It is a good deal, but whether it is right for you depends on your need for a certain income versus your need for capital in future.

Payable for the rest of your life, this pension translates to an index-linked annuity rate of 7.1%. This is roughly double what you can currently get on the open market.

However, you will need to live for about 12 years to break even, so if you are in poor health it might not be right for you.

Also, if you want access to or want to bequeath the capital, you will need to consider other options.

This Ask an Expert question originally appeared in Financial Mail

Read more: Pension

How to beat care fee means testing

Sarah Lord, a chartered financial planner at Killik & Co., replies: Your home is ignored from any means test for care bills if the surviving spouse or partner continues to live there.

Also, if the property is owned as 'tenants in common' it is effectively kept out of the means test. If you currently own the home as joint tenants, consider switching it to tenants in common.

Do not fall into the trap of gifting the property to your sons. Local authorities can still take account of assets that have been deliberately given away to avoid care bills.

Read more: Pension

At age 45 how can I replace my lost state pension?

This is Money Editor Andrew Oxlade says: With yesterday's state pension age changes causing concern for the millions affected, we thought it useful to pose this hypothetical question on pension saving.

Now that retirement dates are being pushed back even further than outlined before, it's become even more important that people take control of their own finances.

People are worried. A This is Money/Prudential poll today found 51% are now worried that their current retirement plans won't be good enough.

The Spending Review set out yesterday that the state pension age will rise to 66 by 2020 for both men and women, instead of by 2026. The changes will start to take effect from 2018.

The bottom line is that all Britons under the age of 57 on 6 April this year will have to wait until at least 66 to start collecting their pension.

Chancellor George Osborne also revealed that the age for women will rise from 60 to 65 between 2016 and 2018, so that it matches the male retirement age before both move higher. That has thrown retirement plans for many women into disarray who were banking on supplementing their income with pension payments.

Before yesterday, the previous Labour government had already set out a roadmap for later retirement. In essence, anyone aged from 42 to 57 retires at 66, those aged 32 to 41 retire at 67 and those aged under 32 retire at 68.

But those dates are still under review - the changes may be accelerated or the end retirement age may be raised further, possible to 70. Work and Pensions Secretary Iain Duncan Smith has suggested the age at which people can claim the state pension could be 'indexed' to increasing life expectancy, as in Denmark.

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So what should our 45-year woman do to replace that lost income she would have had from age 60?

The simple answer is good old fashioned saving. Financial advisers recommend a mixture of assets for long-term saving but often recommend most of it is in stock market investments as, historically, shares deliver the highest returns - although as recent years have shown, that's not always the case.

But how much would she need to save?

Fund manager Fidelity has crunched the numbers and calculated that a 45-year-old woman turning 60 in 2025 will miss out on around £46,976 in basic State pension as a result of the changes. This is based on the current basic State pension, currently £97.65 per week, rising by 2.5% each year.

Based on this, she would need to save an extra £175 per month from now for the next 15 years to have a pot of £49,681, based on investment returns helping the money grow an average 5% a year.

Fidelity says: 'This gives her the flexibility to retire at the current State retirement age of 60 if she wants to. This is on top of any savings she might need to supplement the basic state pension.'

Fidelity also that for a 30-year-old facing a retirement date of 68 would need at the very least a pot of £93,048 to cover the state pension she will miss out on from age 60. However, because she has longer to save it, so she would need to save less - £115 a month - to achieve a pot of £97,649.

Try doing your our sums with our pensions pot calculator.

Read more: Pension

Will employer be able to 'retire' me at 65?

I have heard that the new Government is scrapping compulsory retirement at 65. Is this true and if so how will it affect me?

Caroline Noblet, a partner at Hammonds LLP law firm, replies: Yes. The Government has issued a consultation document on its proposals to phase out the Default Retirement Age (DRA) from April 6 next year with its eventual removal on October 1.

The DRA was introduced under the Employment Equality (Age) Regulations 2006.

These set out a 'duty to consider' retirement procedure that includes a requirement that employers give notice to employees a minimum of six months before their intended retirement date and gives employees the right to request to work beyond their retirement age.

Although compulsory retirement under the DRA will cease completely on October 1, 2011, under these proposals there will be transitional arrangements for retirements notified before April 6 next year if the date of dismissal is before October 1.

So although the DRA is to be removed, your employer will still be able to retire you at 65 as long as formal notification is made to you before April 6, 2011.

From April 6 next year, employers wishing to have a compulsory retirement age for their workforce will be able to do so only if they can objectively justify it, which is likely to be difficult for the vast majority of employers.

The consultation closes in October and the Government intends to publish its response the following month, so it might be worth you not making any firm plans until the final shape of the scheme is decided later this year.

Note that the Government has also recently consulted on the timetable for increasing the State pension age to 66. The current timetable provides for this to happen by 2026, but it is likely to be accelerated. However, the Government has indicated that any change is unlikely to take effect before 2016 at the earliest.

This Ask an Expert question originally appeared in Financial Mail

Read more: Pension

Should I top up NHS pension with savings?

Mel Kenny, and independent Financial planner with Radcliffe & Newlands in the City of London replies: It is a good deal, but whether it is right for you depends on your need for a certain income versus your need for capital in future.

Payable for the rest of your life, this pension translates to an index-linked annuity rate of 7.1%. This is roughly double what you can currently get on the open market.

However, you will need to live for about 12 years to break even, so if you are in poor health it might not be right for you.

Also, if you want access to or want to bequeath the capital, you will need to consider other options.

This Ask an Expert question originally appeared in Financial Mail

Read more: Pension

Pension boost for caring grandparents

Grandparents who stop work will continue to build up National Insurance credits if they are caring for a child under 12.

The proposed system is based on one which mothers can use while raising their children.

One in four families relies on grandparents to care for children. It is estimated that 250,000 miss out on a full state pension as a result of leaving work because they do not build up enough National Insurance contributions. Pensions minister Steve Webb is to announce the launch of a consultation process today.

He will say: 'It is about time that we protected the pension rights of grandparents, many who are in their early fifties and giving up work early to provide vital child care.'

Other relatives caring for a child could also qualify for the contributions.

Grandparents across the country are saving their children £50bn a year by taking over child-caring duties, a major study found last year.

On average, grandparents who help out are contributing nearly 16 hours a week to their grandchildren's care, according to research by HSBC.

The findings add to growing evidence that older people are bearing a growing burden on behalf of their children.

Professor Sarah Harper, director of the Oxford Institute of Ageing, said: 'Older people make a substantial contribution to the family in financial, practical and personal care and support.

'The value of this social care and support within the family is enormous at over £50bn, or around 3% of GDP in the UK alone.'

Read more: Pension

How 40% taxpayers can keep child benefit

Pensions consultants Tower Watson appears to have a solution to this common dilemma - a result of today's government plans to axe child benefit for those paying 40% or 50% higher-rate tax from 2013.

Details of the plans are explained in our child benefit cuts Q&A.

Assuming that laws aren't changed on pensions, Towers Watson suggests that someone earning just over the higher rate threshold can take themselves out of the higher rate tax bracket by paying more into a pension.

Paul Macro, a senior consultant at Towers Watson, explains: 'From 2013, some families could find that putting more money aside for retirement increases the cash in their pocket as well as their pension fund.

'The costs of raising children can prevent parents paying as much into their pensions as they feel they should.

'For some, it may now be a question of whether they can afford not to save more. For a family with three children, child benefit can be worth nearly £2,500 a year, tax-free.'

Child benefit is £20.30 per week for the first child and £13.40 a week for each subsequent child. These rates were already frozen for the next three years in the Emergency Budget in June.

In 2010/11, higher rate tax starts once income exceeds £43,875. But Towers Watson reckons increasing pension contributions could also increase disposable income. This assumes that child benefit is withdrawn altogether from all higher rate taxpayers rather than being tapered away.

• More on child benefit cut:
›› How will child benefit cuts hit you?
›› How 40% taxpayers can keep child benefit
›› Calculator: investing child benefit
›› Calculator: Balance your houshold budget

How to increase diposable income AND get a bigger pension

For a couple have three children under 16. This means that their child benefit will be £2,449 a year if they qualify for it. One partner earns £47,500 and has no other taxable income. The other either does not work or earns less than the higher rate threshold.

Currently, the higher earner pays 5% of their salary into an occupational pension, on top of the contributions that their employer makes for them. This £2,375 employee contribution reduces the salary assessed for income tax to £45,125.

Calculator: The miracle effect of investing child benefit

That £45,125 level is £1,250 above the higher rate threshold. This parent is therefore a higher rate taxpayer, so the family would not qualify for child benefit from 2013.

However, the employee could choose to increase the contributions they make to their pension, paying an extra £1,250. If taken as income, this £1,250 would be taxed at 40%. So paying it into a pension reduces the employee's take-home pay by £750.

However, it also means they are no longer liable for higher rate tax on any of their income. Because neither parent would then be a higher rate taxpayer, the family would now qualify for £2,449 of child benefit.

Overall, the employee could therefore boost their pension fund by £1,250 and their family's disposable income by £1,699.

Tower Watson also points out that individuals can preserve eligibility for child benefit by contributing to a personal pension or by sacrificing part of their salary and instead receiving higher employer pension contributions, which do not count towards taxable income.

But don't forget changing tax bands

If tax bands and personal allowance plans remain unchanged, it will not be those earning more than £44,000 who cannot claim child benefit, as it would stand now, but those earning more than £42,375.

Changes in the Emergency Budget in June meant that from April 2011, the income tax personal allowance will rise by £1,000 to £7,475, but so as not to benefit higher rate taxpayers, the 20% tax band will be trimmed.

Currently 40% tax starts at £43,875: a personal tax allowance of £6,475, plus the £37,400 20% tax band. From April 2011, 40% tax will start at £42,375: a personal tax allowance of £7,475 plus a smaller £34,900 20% tax band.

Childcare vouchers

One other way in which higher rate taxpayers could bring themselves back below the 40% tax band is childcare vouchers.

These are an employer supported way of paying for certain types of childcare. If your employer is signed up to the scheme, which not all are, then you can take some of your pay in the form of childcare vouchers tax-free.

HMRC says: 'If your employer provides you with childcare vouchers you will not have to pay Income Tax or NICs on the first £55 per week, or £243 per month. However, if your vouchers are worth more than this, you will have to pay Income Tax and NICs on the remainder.'

So a worker could theoretically bring their salary down by a maximum of £2,916 a year in the eyes of the taxman.

You do not have to use childcare vouchers in the week or month they are provided - they remain valid for up to a year. For example, your childcare costs may be more than usual during school holidays, and you may want to use them then.

But there is a catch here. The benefit available through childcare vouchers is being cut. Director of Finance Online website explains that those in the higher (40%) and additional (50%) tax rate brackets will, from April 2011, be entitled to relief on £28 and £22 exempt income respectively for each qualifying week.

Crucially, those who are already a member of a childcare voucher scheme, or who join one by April 2011, will not be affected by the changes, as long as they remain continuously within the same scheme.

Read more: Pension

10,000 Equitable Life pensioners miss out

The decision has sparked outrage among pressure groups representing annuitants, who claim that the Government has turned the payment of compensation into a 'lottery'.

The Treasury confirmed on Friday that with-profits annuities taken out before September 1992 are excluded. But those who set up policies later – about 37,000 customers – are included.

The September 1992 cut-off date has been imposed because the Treasury claims annuitants who bought earlier did not make investment decisions that were affected by the Government's maladministration of Equitable Life, leading to the mutual's near-meltdown in 2000.

The £1.5bn package is compensation for the relative losses suffered by policyholders as a result of the failure of previous governments to regulate the mutual effectively.

Peter Scawen of pressure group Equitable Life Trapped Annuitants says the cut-off date is 'unfair and unreasonable' because all with-profits annuitants have been victims of maladministration.

'Once bought, these annuities could not be exchanged, so every annuitant has suffered from the consequences of regulatory failure, irrespective of when they took them out,' he says. 'The decision is illogical and I'm appalled.'

Scawen also says the Treasury's cut-off date ignores the views of Parliamentary Ombudsman Ann Abraham and Lord Chadwick, who in the past have both made recommendations on the extent of Government compensation.

He adds: 'Even Chadwick, who came up with a much financial smaller overall compensation package than the £1.5bn now on the table, said that pre-1992 with-profits annuitants should not be excluded. A review of this crass decision must be made urgently.'

One with-profits annuitant who will get no compensation is Tony Fisk, 79, from Southend-on-Sea, Essex. Tony, a former businessman who used to run his own toys and games agency, bought a with-profits annuity in late 1989.

Since 2000, Tony and his wife, Pamela, 66, have seen the value of this annuity plunge in value by 63%. He now receives just below £6,900 a year, instead of the £18,800 he was getting in 2000.

'I hoped that last week people like me would finally get justice,' says Tony. 'But we haven't and we've been left empty-handed. What is awful is that those people who have been excluded are all in their late 70s and 80s and all have been hardest hit by the Equitable Life debacle.'

On Friday, Tony wrote to Chancellor George Osborne asking for the compensation injustice suffered by early with-profits annuitants to be reversed.

Paul Braithwaite of the Equitable Members Action Group says the Government's compensation package has turned into a lottery.

'Some with-profits annuitants will do fine, others are excluded on questionable grounds, while 600,000 other victims of regulatory failure will barely get back 20% of their losses,' he says.

Read more: Pension

What are power of attorney benefits?

What are the benefits of doing this? J.K.

Phillipa Bruce-Kerr, of solicitors Rickerbys in Cheltenham, replies: There are two types of lasting power of attorney.

One relates to property and financial matters; the other to health and welfare issues. It is worth considering signing both types.

They let you nominate someone to make decisions about your life if you are unable to decide for yourself through ill-health.

You choose your attorney while still in good health but they do not take over your affairs unless your mental capacity deteriorates. You can nominate a second person - a friend or relative - to be informed when the LPA is activated.

LPAs are less expensive and give you more control than the alternative of allowing a court to decide what is best for you at the time.

If they are registered at the Office of the Public Guardian once they are signed, LPAs can be used immediately when ill-health arises.

Read more: Pension

'Your house is a home, not a pension'

Housing Minister Grant Shapps [official website] said the Government would try to ensure property prices rise more slowly than incomes to prevent a repeat of the boom that has made it impossible for a generation to get on the housing ladder.

Mr Shapps issued a stark warning to the better-off, saying they will no longer be able to use rising property prices as a retirement nest egg.

Calling for an end to the 'lottery' of the housing market, he said: 'People should think of homes as a place to live rather than a pension.

'What is required now is a period of stability. House price booms keep people out of the market. And house price busts mean people's homes are worth less than they paid for them.'

Mr Shapps's message is unlikely to appeal to many Tory voters who have relied on regularly rising house prices to help provide a comfortable retirement.

It also leaves him open to accusations of the 'I'm all right Jack' syndrome. He has already pocketed an estimated £250,000 from a previous house sale, and could make a similar amount if he sold his five-bedroom detached house in Hertfordshire, which is currently worth more than £1m.

But Mr Shapps is convinced there is widespread support for his policy. 'The exact same people in Middle England who want a retirement nest egg will say their child can't leave home because they can't afford it,' he said.

'Over time we want to move to a position where house prices continue to grow but people's ability and purchasing power increases quicker.' House prices fell 3.6% in September, the biggest monthly fall since records began in 1983, wiping £6,000 off the value of the average home in just one month.

MONEY BLOG: POSTS ON HOUSE PRICES

Wake up call House prices fall off a cliff

Rental marketAre rents really rising that fast?

Asking prices What are buyers actually paying?

Big squeeze46% can't afford their mortgage

Buy-to-letIs it a bargain investment?

I'm buyingDespite homes being too pricey

CGT let-offInvestors got lucky

What next?House prices this year

ChartsProperty hunters return

The big gapHouse prices vs wages

First timersShould lenders cut rates

Safety firstShould you fix for ten years?

›› Releasing equity from your home: Free guide | The basics

But average prices, just over £162,000, are nearly double the £85,000 figure of a decade ago. Mr Shapps stressed he did not want to see 'a dramatic fall in house prices'.

'I think we need a market that's boring, where the pressure of making what could be the single biggest financial decision of your life, is based on your needs and desires, not on whether you feel lucky. Buying a home shouldn't be like playing the lottery.'

He said rising prices had created a 'Sorry' generation, a reference to the 1980s sitcom in which Ronnie Corbett played a middle-aged man living with his mother.

'With a house liable to cost perhaps seven times someone's earnings, it is no surprise the average unsupported firsttime buyer is now 37 years old. Sorry was once a joke, now it's real life. We'd like to make it a joke again.'

A recent National Housing Federation survey found that 30% of middle-class parents would actually like house prices to drop to help their children.

In August, just 18,300 loans were handed out to first-time buyers, compared to 19,300 in July, and up to 50,000 a month before the credit crunch.

Mr Shapps admitted the Government could not 'dictate' house prices, but said it would help stabilise the housing market by using economic policy to 'keep interest rates low'.

In a speech to the Housing Market Intelligence conference in London, Mr Shapps also vowed to look at building regulations to make it easier to build new homes.

Last year, 142,000 homes were built in the UK, the smallest number during any peacetime period since 1923. In the 1960s, up to 385,000 were built every year.

›› Vote: Is your home your pension?

The best of This is Money, sent once a week, includes house price predictions:

see our latest here »

Read more: Pension

Should I top up NHS pension with savings?

Mel Kenny, and independent Financial planner with Radcliffe & Newlands in the City of London replies: It is a good deal, but whether it is right for you depends on your need for a certain income versus your need for capital in future.

Payable for the rest of your life, this pension translates to an index-linked annuity rate of 7.1%. This is roughly double what you can currently get on the open market.

However, you will need to live for about 12 years to break even, so if you are in poor health it might not be right for you.

Also, if you want access to or want to bequeath the capital, you will need to consider other options.

This Ask an Expert question originally appeared in Financial Mail

Read more: Pension

Public sector pension to rise more slowly

Chancellor George Osborne's emergency Budget in June linked future increases in public sector pensions to the Consumer Prices Index (CPI), not the Retail Prices Index (RPI).

The September inflation figures, published last week, will be used to set April's rise. These show that CPI was 3.1%, compared with RPI at 4.6%.

This means that four million retired public sector workers will lose an average of £117 next year as their pensions rise more slowly.

CPI, which does not include housing costs, is lower than RPI most years. If Government forecasts are correct, this loss of income will grow to about £700 a year for the average pensioner by 2016.

Over time, the switch to CPI is estimated to wipe 15 per cent off the value of the typical public sector Pension according to Lord Hutton's report on public pensions, published earlier this month.

Brian Strutton, national secretary at the GMB union, says: 'The Government's use of CPI for pensions indexation will take money from pensioners just as food and clothing prices are rising and VAT is about to soar.'

The basic State Pension will continue to rise in line with RPI in April next year, taking the Pension for a single person to an estimated £102.15. But other State pensions, including Serps and its replacement, the State Second Pension (known as S2P), will increase only in line with CPI.

Pensions Minister Steve Webb announced in July that private companies should also switch to CPI for calculating the increases due on final salary pensions.

But some pensions have more generous levels of annual increases written into their rules. And there is confusion about whether the Government will force all companies to use CPI.

John Ball, head of UK pensions at consultant Towers Watson, says: 'Three months after the Government said CPI inflation would be used in private sector schemes, employers and trustees are still in the dark as to what exactly the policy is.'

Everything you need to boost your Pension

• Pensions news and advice
• Pensions guides and tips
• Pension experts: Ask a question
• Pension blogs: Personal tips from writers
• Annuity rate tables
• Pension message boards
• Pension pot calculator
• Pension protection fund calculator
• Cheapest Sipps
• Advice on women's pensions

Read more: Pension

Pension cuts hit 100,000 savers

This annual allowance will include money paid in by employers as well as contributions from employees' pay. At present, savers can pay a maximum of £255,000 a year into a pension, although this is complicated by a Labour scheme to claw back higher-earners' tax relief.

The other big change is that the cap on the maximum value of a pension pot will be lowered. The 'Lifetime Allowance' will be trimmed from £1.8m to £1.5m in 2012, though measures will be put in place to protect those whose pension funds are already worth more than £1.5m.

The Treasury estimates 100,000 savers will be caught by the new rules, 80% of whom earn £100,000 a year or more. But experts say this number will increase over time unless the allowances rise in line with earnings.

The new regime is less draconian than had been feared. The Government had initially considered cutting the annual allowance to £30,000. And the rules are far simpler than the complex proposals from the former Labour government that could have raised a similar amount for the Government, but would have been likely to have proved an administrative nightmare. Under rules already implemented, anyone who is earning £130,000 or more has their tax relief capped.

Crucially, savers will get tax relief at their highest rate on every penny paid into a pension. So a 50% taxpayer gets back 50p in the pound. Andrew Tully, pensions policy manager at financial services provider Standard Life, says: 'The Government has listened. These rules are simpler, easier to explain to savers and are cheaper to administer.'

One key concession is the reintroduction of 'carry-forward' rules. These will allow savers to go back up to three previous tax years to hoover up unused allowance, enabling them to pay up to £200,000 into a pension in one go. This will give some protection to the self-employed and those running their own businesses who have irregular incomes. They will be able to pay extra into pensions in bumper years or when they come to sell the business.

Everything you need to boost your pension

• Pensions news and advice
• Pensions guides and tips
• pension experts: Ask a question
• pension blogs: Personal tips from writers
• Annuity rate tables
• pension message boards
• pension pot calculator
• pension protection fund calculator
• Cheapest Sipps
• Advice on women's pensions

Sarah Lord, wealth planning director at Killik & Co, in Mayfair, central London, says: 'The rules will apply from April, going back to the tax year 2008-09.

'So there is a useful chance for those who held off making pension contributions because of the recession and credit crunch to catch up next year.'

Carl McColgan, a director of wealth manager Ashcourt Rowan in Manchester, says: 'We will be encouraging clients to start their pension saving earlier and work towards the target of saving £50,000 a year, rather than waiting until later and saving bigger sums.'

Peter Owen, 62, is relieved that the new rules will allow him to carry on saving. Peter, who lives near Esher, Surrey, runs his own marketing consultancy and is making up for lost time on retirement saving by paying in as much as he can afford to his Aviva personal pension. He aims to pay in 25% of his earnings, and in a good year even more. As a 40% tax-payer, tax relief makes his saving almost doubly worthwhile.

He was concerned that a lower annual contribution limit, say of £30,000, might restrict his savings and was also worried about any further attacks on pensions relief.

Peter says: 'The proposals are not as bad as had first been thought. I've got the green light to carry on with my saving and try to put as much as I can afford into my pension. The tax relief makes it by far the most efficient way to save.'

Those who are members of a final salary pension scheme will also be caught by the rules. Here, a complex formula will be used to test the annual increase in the value of their pension against the £50,000 limit.

Each £1 of extra pension they are entitled to is treated as £16 of pension contribution. This could see those workers with long service who get a promotion and pay rise suddenly facing a shock tax bill because the value of their pension pot is deemed to have increased by more than £50,000.

Again, the Government has listened to pension experts. It will allow the impact of any pay rise on the pension to be phased in over three years, protecting most workers. Those who retire early with an enhanced pension because of ill-health will also be protected.

But workers whose pensions are boosted as part of a redundancy deal could be hit with a tax bill. And there are concerns that the reduction in Lifetime Allowance could hit those who want to retire relatively young.

Tim Stalkartt, head of financial planning at London adviser Bestinvest, says that the amount of pension a £1.5 million pot can buy is surprisingly low. At current annuity rates, a man aged 60 with a wife aged 57 and a £1.5 million fund would be able to buy an inflation-protected income of £2,121 a month after tax, once the couple have taken the maximum tax-free cash of £375,000.

Those with small pensions will be protected. Current rules allow for those with a pension worth one per cent of the Lifetime Allowance - £18,000 - to take the whole pot in cash, rather than being forced to buy a token annuity. The £18,000 limit will remain, despite the lower Lifetime Allowance.

Read more: Pension

They can't find my dad's pension

I tracked down the pension policies, which were finally transferred to Winterthur ltd. But Winterthur has now told me that it does not hold them. S.G., Hartlepool.

Margaret Stone, the Daily Mail's Money Doctor, replies: The pension Tracing Service (0845 6002 537) is the Government agency to help people who have lost track of pension schemes, both company and personal, and previous employers.

However, I had one more stab at Winterthur and asked them to double-check. And no prizes for guessing that, yes, your father's pension policy was held with them.

It seems your father withdrew from the scheme in 1981, and had the benefits transferred into Serps (the former State earnings Related pension Scheme).

There was a small balance (£166.69) which was refunded to the trustees of the pension scheme. So, there is no outstanding or 'lost' pension to come from Winterthur, but there is a widow's pension attached to Serps which, I expect, is being paid to your mother, although you should check.

Winterthur, part of Axa UK, regrets that you were misinformed and is sending £50 as an apology.

Read more: Pension

Women to work six years longer than their mums

Analysts warned that they are 'bearing the brunt of the changes' which will see the state retirement age raised from 60 to 66 much more quickly than originally planned.

Until recently, women could start claiming their state pension, currently worth £97.65, from the age of 60.

Under Labour plans, this was already scheduled to increase gradually to 65 by 2020, and rise again to 66 between 2024 and 2026. But yesterday George Osborne set out a much more aggressive timetable which will penalise women far more than men - who currently retire at 65.

Both men and women will now qualify for the state pension at age 66 by April 2020.

The move, which affects anyone born on or after April 6 1953, will create disparities between women and their own neighbours, colleagues and friends with slightly different birthdays.

A woman born on or after April 6 1954 will now have to wait until 66 to get her pension while a friend born on April 5 1953 will get hers when she is 62 years and 11 months.

The three-year difference means the younger women will lose around £15,000 in state pension payouts.

The change will leave women with no choice but to keep on working, or risk retiring in poverty or very close to the breadline.

But it is not just older women who will pay the price for the need to slash pension spending. During the 1990s, women's state pension age was increased from 62 to 65 in Portugal.

Research showed the move had a direct impact on young, female school-leavers, who struggled to find jobs as older women stuck in their jobs for an extra three years.

Dr Ros Altmann, director general of the Saga Group, the over-50s company, said: 'Women are bearing the brunt of the changes. pension policy always seems to be made by men for men. Women are being sent a simple message - keep on working. That's what the Government's announcement means.'

By comparison, men, who currently retire at 65, are being given a far less bitter pill to swallow, and will retire just one year later at 66.

From November 2018, both women and men will be able to get their state pension only from the age of 65.

It will rise incrementally to 66 by April 2020. This is only the start of a plan which will eventually see men and women have to wait until 68, or possibly even later, before being eligible for their state pension.

Overall, the Government's own research shows the move will affect around 5.1m people in a highly lucrative change.

Between 2015 and 2025, it will save around £30bn in spending on the state pension and other retirement benefits.

And, in an extra bonus, it expects to pull in about £13bn over the same period in extra income tax and National Insurance contribution from the growing army of older women workers.

›› Spending review: How it will affect you
›› Spending review: Key points at a glance
›› Spending review: Winners and losers
›› Spending review: Expert reaction

Paradise postponed

When Christine Allsop and her husband Dave bought a house in the South of France, they dreamed of soon retiring to the sun.

Mrs Allsop, 57, above, fears this will have to wait after the announcement that the state retirement age is to rise.

The grandmother from Evercreech, Somerset, would have qualified for her state pension at 62, but will be affected by the new rules.

Mrs Allsop, who supervises a team of cleaners at a college, said: 'I initially thought I would get my state pension at 60, but I was told a few years ago I would get it at 62. now it could be even longer - it is so frustrating.

'I have worked since I was 15 full-time, paying full taxes. We have bought a place in France and we are waiting until I retire to move in, but I have no idea when that will be.'

She also has the added worry of not knowing whether her 55-year-old husband, a prison officer, will be made redundant amid cuts to the prison service.

Read more: Pension

Women to work six years longer than their mums

Analysts warned that they are 'bearing the brunt of the changes' which will see the state retirement age raised from 60 to 66 much more quickly than originally planned.

Until recently, women could start claiming their state pension, currently worth £97.65, from the age of 60.

Under Labour plans, this was already scheduled to increase gradually to 65 by 2020, and rise again to 66 between 2024 and 2026. But yesterday George Osborne set out a much more aggressive timetable which will penalise women far more than men - who currently retire at 65.

Both men and women will now qualify for the state pension at age 66 by April 2020.

The move, which affects anyone born on or after April 6 1953, will create disparities between women and their own neighbours, colleagues and friends with slightly different birthdays.

A woman born on or after April 6 1954 will now have to wait until 66 to get her pension while a friend born on April 5 1953 will get hers when she is 62 years and 11 months.

The three-year difference means the younger women will lose around £15,000 in state pension payouts.

The change will leave women with no choice but to keep on working, or risk retiring in poverty or very close to the breadline.

But it is not just older women who will pay the price for the need to slash pension spending. During the 1990s, women's state pension age was increased from 62 to 65 in Portugal.

Research showed the move had a direct impact on young, female school-leavers, who struggled to find jobs as older women stuck in their jobs for an extra three years.

Dr Ros Altmann, director general of the Saga Group, the over-50s company, said: 'Women are bearing the brunt of the changes. pension policy always seems to be made by men for men. Women are being sent a simple message - keep on working. That's what the Government's announcement means.'

By comparison, men, who currently retire at 65, are being given a far less bitter pill to swallow, and will retire just one year later at 66.

From November 2018, both women and men will be able to get their state pension only from the age of 65.

It will rise incrementally to 66 by April 2020. This is only the start of a plan which will eventually see men and women have to wait until 68, or possibly even later, before being eligible for their state pension.

Overall, the Government's own research shows the move will affect around 5.1m people in a highly lucrative change.

Between 2015 and 2025, it will save around £30bn in spending on the state pension and other retirement benefits.

And, in an extra bonus, it expects to pull in about £13bn over the same period in extra income tax and National Insurance contribution from the growing army of older women workers.

›› Spending review: How it will affect you
›› Spending review: Key points at a glance
›› Spending review: Winners and losers
›› Spending review: Expert reaction

Paradise postponed

When Christine Allsop and her husband Dave bought a house in the South of France, they dreamed of soon retiring to the sun.

Mrs Allsop, 57, above, fears this will have to wait after the announcement that the state retirement age is to rise.

The grandmother from Evercreech, Somerset, would have qualified for her state pension at 62, but will be affected by the new rules.

Mrs Allsop, who supervises a team of cleaners at a college, said: 'I initially thought I would get my state pension at 60, but I was told a few years ago I would get it at 62. now it could be even longer - it is so frustrating.

'I have worked since I was 15 full-time, paying full taxes. We have bought a place in France and we are waiting until I retire to move in, but I have no idea when that will be.'

She also has the added worry of not knowing whether her 55-year-old husband, a prison officer, will be made redundant amid cuts to the prison service.

Read more: Pension

Look up changes to your state pension age

The current system - where women collect a pension at 60 and men at 65 - must be overhauled because life expectancy is increasing so rapidly.

Most working men didn't live long enough to reach retirement when the Old Age Pensions Act introduced means-tested payments in 1909 from the age of 70 (it was reduced to 65 in 1925).

Today, with much improved diets and healthcare, most people can look forward to two decades of life without work.

To add to the pressure, the 'baby boomers' - a population bulge of people born between 1945 and 1962 - are reaching retirement age.

And in what is effectively a perfect storm, these factors have come to a head when the UK, like many other Western nation, faces buckling amount of state debt.

The previous Labour government set out plans, based on recommendations from Lord Turner, to steadily increase the state pension age to 68 for both men and women over the next four decades.

The Coalition government initially signalled it would speed this up. It said it may bring forward the first rise to 66 for men from 2026 to 2016.

The full changes are still unknown. But today's Comprehensive Spending Review did reveal some crucial changes which effect men aged under 57 and women under 59. Chancellor George Osborne confirmed the rise to 66 for both men and women would come by 2020.

For women, the new rules mean far more dramatic rises than feared. It had been expected that the women's state pension age would rise to 65 by 2020. It will now move to 65 by 2018 and then be hiked to 66 (same as men) by 2020.

Ros Altmann, a former pensions adviser to No.10, said: 'Over the next ten years, women's state pension age will increase by 6 years, from 60 to 66. Over that same ten years, men's state pension age will increase by just one year, from 65 to 66. Is this fair? 'I am not quibbling with the concept of equalising men and women's pension ages, but the speed of change is harsh for women. After much talk of men's pension age rising by one year in 2016, the reality is that Government has given men a reprieve, but it is women who are paying for that by a more rapid rise in their pension age.'

Rash Bhabra of pension consultants Towers Watson agreed saying: 'The biggest losers from today's announcement are some of the women born around 1954. A woman born on 5 April 1953 will still be able to claim her State pension when she is just 62 years, 11 months and one day old. A woman born a year and a day later will have to wait until she is 66.

'The extra three years of income could be worth more than £15,000 just looking at the Basic State pension and could be much higher for women with substantial entitlements to SERPS or the State Second pension. It may have been fairer to start the changes earlier but implement them more gradually.'

The previous Labour government's policy was to raise the state pension age to 66 in 2024 and then incrementally to 68 by 2046. Under Labour, retirement was due to equalise for men and women at 65 by 2020, rise to 66 between 2024 and 2026, 67 between 2034 and 2036, and 68 between 2044 and 2046. Until the Coalition flesh out the rest of the detail (for those in their forties and younger), these details stand.

›› Free guide: Top 10 early retirement tips

So when will I retire?

What we know for sure is this: all men and women under 57 will have to wait at least until 66 before they can retire. All Britons born after 6 April 1954 will have to wait until they're 66 from 2020.

You can find out exactly when you will be able to claim your State pension by going to the pension Service website calculator. [Yet to be updated following the Spending Review]

After that, we must rely on Labour's existing plans until the Government makes its next move. Our very rough guide, below, explains what it means for you under those previous plans:

MEN - a rough guide

• Under 32s................................. can get state pension at 68*

• Aged between 32 and 41....................... can get state pension at 67*

• Aged between 42 and 57.........................can get state pension at 66

• Older than 57......................can get state pension at 65

WOMEN - a (very) rough guide

• Under 32s..................................can get state pension at 68*

• Aged between 32 and 41.......................can get state pension at 67*

• Aged between 42 and 57....................can get state pension at 66

• Aged between 57 and 59...............can get state pension at approx. 65

• Older than 59......................can get state pension at 60

* Warning! These changes are under review and will be altered by the coalition Government. Expect further announcements 'in due course'.

Will the state pension rise to 70 or further?

Lord Turner, who conducted a review into the state pension age, admitted after finishing it that he wished he'd recommended 70 rather than 68. That's the sort of drastic change that's needed to avoid leaving younger generations saddled with huge tax bills or saddled with debt.

If the state pension age were to rise in line with life expectancy, it would need to be hiked to 72 by 2030, according to the Pensions Policy Institute.

But as we have pointed out before, such drastic actions are impossible as it would be political suicide: Retire at 70? No chance - our demographic nightmare in a nutshell

Read more: Pension

Britons are pension paupers of Europe

A report by insurance giant Aviva and accountancy firm Deloitte found Britain's 31 million savers need to pay an extra £317.5bn into their pensions over the next 40 years or face a poor retirement.

Germans are the next worse off - facing a shortfall of £9,700 per person - while savers in Hungary have an average shortfall of just £1,600.

Experts say the figures show the mountain facing British savers as they pay the price for a meagre state Pension, huge cutbacks in company pensions and record low Pension payouts.

'Britain has the meanest state Pension in the Western world,' says Dr Ros Altmann, governor of the London School of Economics.

'Private pensions have been hammered by falling markets, company Pension schemes have been cut back and people are living longer.

'Unless there is radical change, a larger proportion of people will be retiring in poverty.'

Less than a third of the workforce of 29m are saving into a company Pension scheme and firms that offer pensions are scaling back their benefits.

Generous final salary pensions in the private sector are also dying out, dropping from 4.9 million members in 1995 to just 1.1m today.

Pension payouts are at record lows, with a fund paying half the income it would have done 15 years ago.

Those due to retire in the next five years face the biggest challenge because they have less time to plug their shortfall. This has pushed up the overall shortfall figure in the report.

'These figures should be a wake-up call for individuals and governments across Europe, particularly in the UK,' says Toby Strauss, chief executive of Aviva UK Life.

The report has assumed zero inflation and no interest is earned on savings. It also assumes the number of people aged 60 to 64 remains fixed.

Source: Aviva

Read more: Pension

They can't find my dad's pension

I tracked down the pension policies, which were finally transferred to Winterthur ltd. But Winterthur has now told me that it does not hold them. S.G., Hartlepool.

Margaret Stone, the Daily Mail's Money Doctor, replies: The pension Tracing Service (0845 6002 537) is the Government agency to help people who have lost track of pension schemes, both company and personal, and previous employers.

However, I had one more stab at Winterthur and asked them to double-check. And no prizes for guessing that, yes, your father's pension policy was held with them.

It seems your father withdrew from the scheme in 1981, and had the benefits transferred into Serps (the former State earnings Related pension Scheme).

There was a small balance (£166.69) which was refunded to the trustees of the pension scheme. So, there is no outstanding or 'lost' pension to come from Winterthur, but there is a widow's pension attached to Serps which, I expect, is being paid to your mother, although you should check.

Winterthur, part of Axa UK, regrets that you were misinformed and is sending £50 as an apology.

Read more: Pension

'Your house is a home, not a pension'

Housing Minister Grant Shapps [official website] said the Government would try to ensure property prices rise more slowly than incomes to prevent a repeat of the boom that has made it impossible for a generation to get on the housing ladder.

Mr Shapps issued a stark warning to the better-off, saying they will no longer be able to use rising property prices as a retirement nest egg.

Calling for an end to the 'lottery' of the housing market, he said: 'People should think of homes as a place to live rather than a pension.

'What is required now is a period of stability. House price booms keep people out of the market. And house price busts mean people's homes are worth less than they paid for them.'

Mr Shapps's message is unlikely to appeal to many Tory voters who have relied on regularly rising house prices to help provide a comfortable retirement.

It also leaves him open to accusations of the 'I'm all right Jack' syndrome. He has already pocketed an estimated £250,000 from a previous house sale, and could make a similar amount if he sold his five-bedroom detached house in Hertfordshire, which is currently worth more than £1m.

But Mr Shapps is convinced there is widespread support for his policy. 'The exact same people in Middle England who want a retirement nest egg will say their child can't leave home because they can't afford it,' he said.

'Over time we want to move to a position where house prices continue to grow but people's ability and purchasing power increases quicker.' House prices fell 3.6% in September, the biggest monthly fall since records began in 1983, wiping £6,000 off the value of the average home in just one month.

MONEY BLOG: POSTS ON HOUSE PRICES

Wake up call House prices fall off a cliff

Rental marketAre rents really rising that fast?

Asking prices What are buyers actually paying?

Big squeeze46% can't afford their mortgage

Buy-to-letIs it a bargain investment?

I'm buyingDespite homes being too pricey

CGT let-offInvestors got lucky

What next?House prices this year

ChartsProperty hunters return

The big gapHouse prices vs wages

First timersShould lenders cut rates

Safety firstShould you fix for ten years?

›› Releasing equity from your home: Free guide | The basics

But average prices, just over £162,000, are nearly double the £85,000 figure of a decade ago. Mr Shapps stressed he did not want to see 'a dramatic fall in house prices'.

'I think we need a market that's boring, where the pressure of making what could be the single biggest financial decision of your life, is based on your needs and desires, not on whether you feel lucky. Buying a home shouldn't be like playing the lottery.'

He said rising prices had created a 'Sorry' generation, a reference to the 1980s sitcom in which Ronnie Corbett played a middle-aged man living with his mother.

'With a house liable to cost perhaps seven times someone's earnings, it is no surprise the average unsupported firsttime buyer is now 37 years old. Sorry was once a joke, now it's real life. We'd like to make it a joke again.'

A recent National Housing Federation survey found that 30% of middle-class parents would actually like house prices to drop to help their children.

In August, just 18,300 loans were handed out to first-time buyers, compared to 19,300 in July, and up to 50,000 a month before the credit crunch.

Mr Shapps admitted the Government could not 'dictate' house prices, but said it would help stabilise the housing market by using economic policy to 'keep interest rates low'.

In a speech to the Housing Market Intelligence conference in London, Mr Shapps also vowed to look at building regulations to make it easier to build new homes.

Last year, 142,000 homes were built in the UK, the smallest number during any peacetime period since 1923. In the 1960s, up to 385,000 were built every year.

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10,000 Equitable Life pensioners miss out

The decision has sparked outrage among pressure groups representing annuitants, who claim that the Government has turned the payment of compensation into a 'lottery'.

The Treasury confirmed on Friday that with-profits annuities taken out before September 1992 are excluded. But those who set up policies later – about 37,000 customers – are included.

The September 1992 cut-off date has been imposed because the Treasury claims annuitants who bought earlier did not make investment decisions that were affected by the Government's maladministration of Equitable Life, leading to the mutual's near-meltdown in 2000.

The £1.5bn package is compensation for the relative losses suffered by policyholders as a result of the failure of previous governments to regulate the mutual effectively.

Peter Scawen of pressure group Equitable Life Trapped Annuitants says the cut-off date is 'unfair and unreasonable' because all with-profits annuitants have been victims of maladministration.

'Once bought, these annuities could not be exchanged, so every annuitant has suffered from the consequences of regulatory failure, irrespective of when they took them out,' he says. 'The decision is illogical and I'm appalled.'

Scawen also says the Treasury's cut-off date ignores the views of Parliamentary Ombudsman Ann Abraham and Lord Chadwick, who in the past have both made recommendations on the extent of Government compensation.

He adds: 'Even Chadwick, who came up with a much financial smaller overall compensation package than the £1.5bn now on the table, said that pre-1992 with-profits annuitants should not be excluded. A review of this crass decision must be made urgently.'

One with-profits annuitant who will get no compensation is Tony Fisk, 79, from Southend-on-Sea, Essex. Tony, a former businessman who used to run his own toys and games agency, bought a with-profits annuity in late 1989.

Since 2000, Tony and his wife, Pamela, 66, have seen the value of this annuity plunge in value by 63%. He now receives just below £6,900 a year, instead of the £18,800 he was getting in 2000.

'I hoped that last week people like me would finally get justice,' says Tony. 'But we haven't and we've been left empty-handed. What is awful is that those people who have been excluded are all in their late 70s and 80s and all have been hardest hit by the Equitable Life debacle.'

On Friday, Tony wrote to Chancellor George Osborne asking for the compensation injustice suffered by early with-profits annuitants to be reversed.

Paul Braithwaite of the Equitable Members Action Group says the Government's compensation package has turned into a lottery.

'Some with-profits annuitants will do fine, others are excluded on questionable grounds, while 600,000 other victims of regulatory failure will barely get back 20% of their losses,' he says.

Read more: Pension