INTRODUCTION

Few people are free of financial worries in retirement. But understanding what to expect from your pension and pension-related investments will help you maximise your income.

The biggest financial concern for most over 50s is how they will scrape by on their pension income in retirement. Stock market uncertainty and company pension wind-ups continue to cast a low over the future for many people. Yet there have been some scraps of good news recently, although they are, indeed, scraps. Firstly, the 2003 recovery in the stock market helped reduced the black hole in many major company's final pension schemes by £13 billion (although that still leaves a £42-billion shortfall) and stock markets have a long way to go before that is made good).

More recently, in May 2004, the Government announced a £400-million scheme to compensate the estimated 60,000 workers who lost their company pensions in recent years (a sum that equates to just £10 per member per week, but at least that is £10 more than many thought they would see).

Matters should improve from April 2005 when the Pension Protection Fund is introduced. although members of schemes that collapsed prior to that have no protection.

Also, interest rates have started to rise, giving retired people a better return on their savings, and those approaching retirement a marginally better deal on their annuities. Inflation is also low, so the value of those savings isn't being eroded so rapidly.

Unfortunately, the good news seems to end there. Rising life expectancy will play havoc with pension planning in future, making both public and private sector schemes increasingly unaffordable. Proposals from the CBI and OECD (Organisation for Economic Co-operation and Development) to raise state retirement age to 70 were rejected by Government in July 2004. Meanwhile others have suggested that pension savings should be compulsory.

Politicians know there are no votes in introducing these measures, but one day they may have no choice. In fact, stopping work at the state retirement age (65 for men, 60 for women) is already impossible for many. In August 2004, the number of people working beyond that age topped the one million mark for the first time, according to the Third Age Employment Network. This makes pensioners the only age group with a rising rate of employment, as increasing numbers combine work and semi-retirement in later life. Unfortunately, many are often paid less and work in lower-quality jobs than younger colleagues.