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

Elderly set for 4.6% state pension boost

This means the basic state pension will rise from £97.65 to £102.15 in April 2011. The joint pension will rise from £156.15 to around £163.35.

This will come as a relief after last year's blow, when RPI fell into negative territory, which meant pension payments rose by only the minimum amount set - 2.5%.

The Government uses RPI each September to determine the following April's rise in the basic state pension, although it has pledged a minimum rise of 2.5% or the increase in average earnings, dependent on whichever is higher.

The irony is that while historically earnings have always grown faster than prices, now the much-called for link has been restored the opposite is true. Average weekly earnings grew by 1.9% in the year to July.

And from next year, basic state pension calculations will switch to CPI, which may mean lower increases.

John Ball, head of UK pensions at Towers Watson, said, 'In 2012, pensioners are forecast to get a smaller increase than they would do with the old RPI link. Over time, however, the earnings link is an expensive commitment and the State pension Age will have to rise faster to help balance the books.'

Recipients of public sector pensions, the State Second pension and some private sector defined benefit pensions already see a rise of only 3.1%, after the government switched the benchmark for these benefits to CPI.

This will also hit benefit payments, with the government switching to CPI this year for jobseeker's allowance and tax credits.

John Ball said this means that, 'Someone receiving £10,000 this year from a public sector pension scheme can expect this to rise to by £310 in April. Under the old rules, it would have been £460.

'If the forecasts used in the Budget prove correct, their annual income should be about £900 lower than it would have been by 2016.'

As for company pensions, pensions minister Steve Webb has said that increases to 'all occupational pensions' should be based on CPI inflation. However, it is unclear how extensively this will be taken up.

John Ball said, '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 the policy is. It has not said employers will be allowed to override scheme rules without trustees' consent, nor ruled this out. Unless that happens, many pensioners will still be able to look forward to RPI-based increases.

'In most schemes, the situation is clearer when it comes to people who have left the employer but not yet retired. Here the member's loss is their former employer's gain.'

Read more: Pension

Will child benefit axe hit women's pensions?

Dan Hyde, This is Money's pensions correspondent, replies: Currently, mums looking after children full-time qualify for 'childcare pension credits' every time they claim child benefit. These credits build up their entitlement to the state pension.

So one week of child benefit also qualifies the claimant for a week of National Insurance contribution towards the state pension.

But with the Government scrapping child benefit for higher earners, experts fear that stay-at-home mums could lost out when they get to retirement.

That's because you to have worked for 30 'qualifying years', making full National Insurance payments along the way, to get the maximum basic state pension. Currently, that's £97.65 a week.

However, just 30% of women who in retirement today get the full amount, with many receiving less because they took career breaks to look after their children, thus sacrificing 'qualifying years'.

To combat this perceived injustice, the Government introduced a credit system last April. It was designed to stop women being penalised if they chose to be stay-at-home mums by using the credits accrued as substitutes for qualifying years. So even if a mother had spent 20 years at work and 20 raising children, she could get the full basic state entitlement.

And the child benefit changes?

Here's the catch with the Government's new proposals. A portion of the childcare pension credits are linked to child benefit claims. In theory: if you cease to claim child benefit, you no longer get the credits. This was reported by TheTimes.co.uk.

It means that if the Government presses ahead and withdraws all child benefit to families where one parent or more is a higher rate taxpayer earning over £43,875, it will be harder for their partners to build up state pension entitlement and some may no longer qualify for the full amount at retirement.

Is it really going to happen?

The Government will almost certainly need to find a way around this problem. It would be criminal to let stay-at-home mums lose out like this - particularly after the positive reforms last April.

And sure enough, after concerns were voiced yesterday the Department for Work and Pensions and the Treasury moved to reassure mums that no one will lose out.

Once again, this is an example of how poorly thought-out George Osborne's child benefit changes seem to be.

The child benefit changes have already been labeled 'brutally simple' because families with an annual income of nearly £88,000 could still claim child benefit, if neither income exceeds £44,000, but a family with one earner on £45,000 will have it removed.

Being forced to fiddle around with a loophole that stops women from building up retirement entitlements is another embarrassment for the Chancellor, George Osborne, as he attempts to make swingeing cuts to Britain's public spending.

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

Q&A: State pension age to rise to 66

What's happening?

Millions of Britons will have to wait longer to receive their state pension, the Government announced today.

How long?

The state pension age will rise to 66 by 2020 for both men and women. The changes will start to take effect from 2018.

Who is affected?

All Britons under the age of 57 on 6 April this year will have to wait until they're 66 before they get their pension.

Is that the worst of it?

Not likely. Ministers are also understood to have examined the possibility of extending the pension age to 70 and even higher in the following decades.

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.

Why is all this happening?

To be blunt: our heavily indebted Government (which owes about £890bn) can no longer afford to support Britain's ageing population. UK life expectancy is rising rapidly as we live healthier lifestyles and enjoy better medical care.

The average British male now lives until 77 years, and female until 81. Back when the state pension age was set at its current 65 level in 1925, only a third of men and 40% of women were expected to live to see their 65th birthday.

It means our taxes are being used to fund an ever-growing population of older, retired Britons. Official statistics project that by 2034 the number of people aged 85 and over will be 2.5 times larger than in 2009, reaching 3.5m and accounting for 5% of the UK population.

In the Spending Review today, Chancellor George Obsorne said: 'Raising state pension age is what many countries are now doing. It will save over £5bn a year.'

Any positives to soften the blow?

Yes. One is that axeing of the Default Retirement Age (DRA). This allowed employers to force staff to retire when they hit 65.

A Government consultation is currently in-process, with the results set to be announced before Christmas. Expect the DRA to disappear completely, fostering an older working population and reducing the state benefit burden.

Free eye tests, prescriptions, the winter fuel allowance and bus passes will remain for pensioners. As well as free TV licences for over 75s, which were rumoured to be scrapped. George Osborne said: 'We believe in cold weather payments for life, not just general elections'

Anything else?

Here's the silver lining: the actual level of the state pension could increase. Currently the full basic state pension is £97.50. That can be topped up with pension credits to about £130. But many are still left in abject poverty. Currently, around 2m retired people live below the poverty line.

At last month's Lib Dem party conference, Steve Webb talked at length about the need for a 'decent and fair' state pension that doesn't leave any retired Britons desperately needy.

Potentially, the Government will increase the level of state pension provision so that it is more adequate for poorer Britons who have been unable to save. Numbers such as £8,000 a year and £11,000 a year have been bandied about, but no one knows yet.

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

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