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

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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.

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'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.

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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

Tax grab on high-earner pension savings

From 2011, pensions tax relief will be capped at the first £50,000 of contributions made, marking a massive reduction from the current £255,000 annual allowance.

The Treasury said around 100,000 people will be affected by the changes, with 80% of those earning over £100,000 a year.

The tax clampdown is set boost the Government's coffers by around £4bn a year and represents the latest move towards reducing Britain's national debt mountain.

This is Money revealed yesterday that the Treasury had caved in to the pensions industry's demands to keep the limit 'nearer £50,000', while many industry speculators had thought the limit would be set at £40,000.

Additionally, the total amount that savers can contribute over the course of their lifetime has been cut to £1.5m from £1.8m.

financial Secretary to the Treasury, Mark Hoban, said: 'We have developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.

'The Coalition Government believes that our system is fair, will preserve incentives to save and - compared to the last Government's approach - will help UK businesses to attract and retain talent.'

The Treasury announcement added: 'This measure will raise £4bn per annum in steady state and will help reduce the record Budget deficit that this Government inherited.'

The new cap will undoubtedly hit six-figure earners hardest, with the vast majority of Britons whose pension contributions fall well below £50,000 a year unaffected.

However, experts fear that middle-class professionals in final salary pension schemes will lose out. That's because a pay rise is interpreted as a contribution into the pension. Those earning around £50,000 a year and getting a significant payrise could suffer.

The Government also moved to allay fears that savers planning to make large pension contributions in the years leading up to retirement will lose out.

To protect those who exceed the annual allowance due to one-off 'spike' in contributions - such as small business owners making selling up to fund their old age - the Government will allow individuals to offset this against unused allowance from previous years.

Experts had feared that too much tightening of the tax relief rules could discourage saving in Britain.

Tom McPhail, a pensions specialist at financial adviser Hargreaves Lansdown, says: 'It is vital that the government maintains incentives for individuals to defer spending and to save for their retirement.

'Without suitable tax breaks on pensions, individuals will make decisions now which may appear rational in the short term but which would detrimental both to themselves and to the stability of the economy in the longer term.'

Pensions tax relief means that higher rate taxpayers only needs to save £60 to see £100 go into their pension pot. Essentially, the Government rebates the income tax you've paid on your pension savings.

Once retired, most people see their income drop. If a former higher rate taxpayer then has an annual income of less than £43,000, he or she will only need to pay 20% tax on when they draw on their pension.

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

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.

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