Plan to end the so called default retirement age is outlined in a consultation document to be published today

People will be encouraged to work longer under government plans to phase out the so-called default retirement age of 65 by October 2011.

Currently employers can make staff retire at 65 regardless of their circumstances, but ministers signalled this was set to change as people were living longer, healthier lives.

The proposal to phase out the default retirement age (DRA) is outlined in a consultation document, published today, which will run until October.

However, the government said bosses will still be able to operate a compulsory retirement age if they can “objectively justify it”.

The move to phase out the DRA is one of a number of measures the government is taking to help and encourage people to work for longer against the backdrop of demographic change.

Other steps include reviewing when the state pension age should increase to 66 and re-establishing the link between earnings and the basic state pension.

The business department said the consultation also proposes to help employers by removing the administrative burden of statutory retirement procedures.

A department spokesperson said: “With the DRA removed there is no reason to keep employees’ right to request working beyond retirement or for employers to give them a minimum of six months notice of retirement.

“Although the government is proposing to remove the DRA, it will still be possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it. Examples could include air traffic controllers and police officers.”

The plans provoked a mixed reaction. Campaigners welcomed the decision, but employers warned the removal of a default retirement age could make workforce planning more difficult.

Chris Ball, chief executive of The Age and Employment Network, called it a “win/win outcome” for employers, but warned that today’s move is only a first step.

“Many employers will need to adopt a totally new mindset,” Ball said. “They will need to actively plan and assist workers to be able to go on contributing to the success of their organisations.

“This may mean adapting work practices and work places. It will certainly mean providing opportunities to train or retrain and to work more flexibly, and, crucially, actually recruiting people in their 50s and 60s where they may not have done so in the past.”

Rachel Krys, campaign director of anti-ageism group the Employers Forum on Age, said the default retirement age, which was created in 2006, was a “dated and unfair system”.

“Its removal is simply common sense,” she said. “With rising life expectancies, and people staying fitter for longer, it is archaic to assume that someone’s age is an indicator of the contribution they can make to the workplace.

“Employers have nothing to fear from this change. This is an outdated policy and the removal of forced retirement is an opportunity to put policies and processes in place which make the most of an age-diverse workforce.”

The Chartered Institute of Personnel and Development (CIPD), which has campaigned for many years to remove the DRA, said the “breakthrough” was “greatly encouraging”.

Dianah Worman, the CIPD’s diversity adviser, said: “Our research has shown that many employees wish to work past retirement for differing reasons and many employers are already benefiting from allowing such flexibility.”

The Confederation of British Industry (CBI) said the proposals will give employers little time to prepare and leave them with unresolved problems. John Cridland, CBI deputy director-general, said: “Scrapping the DRA will leave a vacuum and raise a large number of complex legal and employment questions, which the government has not yet addressed. Employers and staff will not know where they stand. There will need to be more than a code of practice to address these practical issues; we will need changes in the law to deal more effectively with difficult employment situations.”

David Yeandle, the Engineering Employers Federation‘s head of employment policy, said: “Many manufacturers will be seriously concerned about this change in policy, which will make workforce planning more difficult.

“The proposed timetable also gives employers virtually little or no time to alter their policies and practices before such an important change in employment legislation is introduced.

“There is also a real danger that it could open a Pandora’s box with the onus being placed on employers to prove whether older employees are capable of continuing in their current role. Inevitably, this could lead to employment tribunal cases from some older employees who have been dismissed rather than allowed to retire.”

Today, pensions minister Steve Webb admitted that people face a “hell of a shock” when they reach retirement because of their failure to save.

In an interview with the Independent, he admitted that the basic state pension of £97 a week is “not enough to live on”, and confirmed that the government would raise the state retirement age to 66 earlier than planned. He said that around 7 million people are currently not saving enough to meet their retirement aspirations.

Personal finance and money news, analysis and comment | guardian.co.uk

A miscaculation by the Yorkshire and Clydesdale banks means some mortgage holders could be asked to repay up to £300 more each month

Thousands of Clydesdale and Yorkshire Bank mortgage customers are facing higher monthly payments after the providers, owned by National Australia Bank, said they had miscalculated repayments on some of their variable and tracker rate mortgages.

The banks said 18,000 customers have been left with a shortfall on their mortgages, all of who have now been asked to pay the correct monthly amount plus an additional monthly sum to meet the shortfall. According to a spokesman for Yorkshire Bank the affected products are “some variable rate mortgages on which interest is calculated daily, which will include some trackers.”

Around 10,000 of the victims are Clydesdale customers in Scotland, with the remainder Yorkshire Bank customers. In total, £19m has been underpaid with an average individual total underpayment of £800. However, some homeowners face soaring repayments of up to an extra £300 a month.

One mortgage payer, writing on the MoneySavingExpert forum, said: “They are asking for an extra £200 per month for the remaining nine years of our mortgage. This is in excess of £21,000. How is this possible?”

The problem began in 2005 when a mathematical error resulted in over or underpayments being made whenever the Bank of England base rate moved up or down sharply. When rates plummeted in late-2008 to early-2009 customers were not asked to pay enough.

The bank said there were options available to customers, including making a one-off payment to cover the shortfall or extending their mortgage term, and both providers were dealing with problems on a case-by-case basis.

A spokesman for Yorkshire Bank said: “[The banks] have been speaking to the Financial Services Authority and the Financial Ombudsman Service (FOS) about how best to handle this, and they wanted to do it the right way.”

Steve Reid, retail director for the Clydesdale and Yorkshire Bank, said: “We are very sorry that this error has happened and for any inconvenience it may have caused those customers affected. We would like to reassure mortgage customers that they need take no action unless they have received a letter from us.

“The vast majority of our customers are not affected and, of those that are, 99% have already received their letter advising them of the specific impact on their account. The other 1% will hear from us in the next couple of weeks advising them of options to bring their account back on track.”

But Dan Plant, a money analyst at MoneySavingExpert, said: “This huge error could push many borrowers into difficulties paying their everyday bills, as the massive hikes in mortgage payments are unlikely to have been budgeted for.

“However, unlike when customers miscalculate payments and get slapped with huge £30-£40 charges, here the bank has messed up but the customers are still feeling the brunt.”

The website said customers could demand not to pay the shortfall or try and come to an agreement where they only pay a percentage of the cash due. If customers don’t get a satisfactory response within eight weeks or are rejected earlier, they have a right to complain to the independent FOS.

Personal finance and money news, analysis and comment | guardian.co.uk

Announcement this morning expected to say that pension investors will no longer be forced to buy an annuity

The government will announce a long awaited consultation on the scrapping of compulsory annuitisation later this morning.

The Financial Secretary to the Treasury Mark Hoban will announce proposals outlining how the government intends to implement the “simplification” of rules from 2011 which force people to buy an annuity with their pension fund.

Both the Conservative and the Liberal Democrat manifestos included plans for the ending of these rules, which are particularly unpopular with wealthier investors who feel they and their families lose out through having to buy an annuity which will die with its owner.

Chancellor George Osborne announced in the budget that the age at which an investor has to use his pension fund to buy an annuity would be pushed back from 75 to 77.

But Tom McPhail, head of research with independent financial adviser Hargreaves Lansdown said he expected the Treasury to announce a further relaxation of this requirement.

He said: “This change is likely to require investors to secure a minimum level of guaranteed income, ensuring that they won’t be a welfare liability to other taxpayers. Investors will then have the freedom to draw on the balance of their pension investments either as a lump sum or in the form of a drawdown income. On death they will be able to pass on their remaining pension assets to family members.

“This consultation is a revolutionary change, putting investors in charge of their own retirement plans. The more you save for retirement, the more control and flexibility you’ll have and ultimately, the more you’ll be able to pass on to your family on death. Combined with the tax breaks on pensions, these simple messages will be very popular with investors.”

However, he pointed out that most people would still end up being required to buy a pension annuity, because the vast majority are bought with relatively small pension funds of £50,000 or less.

McPhail said: “For most investors with this size of pension fund, it is not realistic to take on investment risk or life expectancy risk after retirement. Over time we expect more and more investors to build up money purchase funds large enough to be relevant.”

Yesterday Hoban announced further details of a new scheme that could help people to save more towards their retirement: the planned “financial healthcheck”, which will be developed and piloted by the Consumer Financial Education Body, should be ready for launch next spring.

He said: “The healthcheck will help families and individuals get into the habit of taking a thorough look at their finances. It will show them where they are most at risk and how they can regain control and plan for the future. The healthcheck will give people a ‘prescription’ that will offer clear advice on what they can do to improve their financial situation now and for the years ahead.”

He added that general household savings were also far too low: “In fact, household saving was negative in 2008 for the first time since the 1950s. Far too few were saving for a rainy day. Before the crisis more than a quarter of households had no savings at all, almost half had less than £1500 in savings and of those who were in debt, many were in arrears, at an average level of £1,100.

“As a government, we are committed to helping families to take greater responsibility for their finances and to cushion themselves from future shocks.”

Personal finance and money news, analysis and comment | guardian.co.uk

Experts says further eruptions are possible as insurers unveil a raft of add-ons to cover flight disruption

Holidaymakers hoping for a trouble-free trip may yet find their travels disrupted by further Icelandic volcano activity this summer, according to volcanologists.

Magnús Tumi Gudmundsson, professor of geophysics at the University of Iceland, said: “The previous activity lasted for 14 months with long spells of inactivity, so on the basis of the history of this volcano we are not convinced that the current activity is over.”

Any new eruption could boost demand for “volcano insurance”, following a surge in demand after Eyjafjallajökull erupted in April, leading to air travel disruption across Europe. This led to huge interest and increased sales of travel insurance add-ons to cover airspace closure, according to figures from Aviva and web research company Greenlight.

The number of people searching on Google for “volcano insurance” increased from 58 searches in March (were they volcanologists who knew what was coming?) to 9,900 in April – an increase of 17,000% – while “travel insurance compare” increased, month-on-month, from 18,100 searches in March to 33,100 in May.

As a result some websites attracted a huge number of clients during April. Moneysupermarket.com benefited most, with a surge in travel insurance-related traffic of 27% from 15-20 April. By contrast, searches for home insurance products dropped from 1.3m to 476,000.

In May Aviva, the UK’s largest insurer, announced the launch of an optional add-on to its standard travel insurance policy, offering extra protection should customers’ holiday travel be affected by UK airspace, port or airport closure.

Aviva’s Sally Leeman said that since they began offering the added cover 83% of existing customers who have called the group about the product have gone through with the purchase, though the insurer could not give a figure for how many actual added policies were sold.

Aviva’s standard cover offers £25 a person for every full 12-hour period of delay up to £250 between the scheduled departure of the original flight and the eventual departure time.

The add-on raises this to £100 a person for every 24 hours that the policyholder is unable to return home (to a maximum of £1,500), irrespective of any help given by the travel provider or airline.

A second option offers up to £1,000 a person for any “necessary and reasonable” travel expenses where after 24 hours you unavoidably have to make immediate alternative arrangements to get home, which your holiday provider cannot arrange. It will also pay for emergency medical supplies required to prevent a deterioration or exacerbation of an existing condition.

Aviva’s Jerry Finch said the added cover is worth it: “It should help customers feel more confident of their position. By introducing the new option we are providing our customers with the freedom to choose the amount of cover they feel would be right for them.”

The key benefit normally associated with a standard travel policy has historically been medical emergency cover, and this still remains the top reason for any claim.

Research company Defaqto said most travel insurance policies fail to even offer cover for scheduled airline failure, let alone so-called volcano cover, and the £1,500 average limit may not be enough. “Of the 20% of providers that do offer scheduled airline failure cover, the limit may not be sufficient to cover all of the other pre-booked and paid-for items such as hotel accommodation, excursion tickets and car hire,” Brian Brown said. “It is essential travellers review the details of their policy before they set off.”

He added that travelling with an ATOL- or ABTA-bonded organisation would offer holidaymakers more protection than independent arrangements, and travellers should use their credit card when booking, which on purchases of £100 to £30,000 provides statutory protection if the company or supplier goes bust, or if there is a problem with goods or services.

Personal finance and money news, analysis and comment | guardian.co.uk

Detailed audit shows women to shoulder three-quarters of cuts

The coalition’s financial plans are the “worst for women since the creation of the welfare state” according to an analysis of last month’s emergency budget.

As the government warned some departments to prepare for cuts of up to 40%, a study by the House of Commons library on behalf of the shadow welfare secretary, Yvette Cooper, revealed that women will shoulder nearly three-quarters of the burden.

Cooper accused the coalition government of sanctioning a budget whose impact fell disproportionately on women. The gender audit of the budget – structured by Cooper but conducted by the Commons library – showed that more than 70% of the revenue raised from direct tax and benefit changes is to come from female taxpayers.

Of the nearly £8bn net revenue to be raised by the financial year 2014-15, nearly £6bn will be from women and just over £2bn from men. Cooper said the proposed cuts of up to 40% in some departments’ budgets, floated by the government at the weekend, would also be likely to disproportionately hit women, who make up a large section of the public sector workforce.

She told the Guardian: “Women are bearing nearly three-quarters of the Tory-Liberal plans, while men are bearing just a quarter. This is despite the fact that women’s income and wealth is still considerably lower than men’s.

“Even more significant, this doesn’t include the impact of public spending cuts. As women make up more of the public sector workforce they will be more heavily hit by the public sector pay freeze and the projected 600,000 net public sector job losses.”

Cooper said that the coalition had failed even on its own criteria by decreasing support for families.

“David Cameron promised the most family-friendly government ever. Yet they have just launched the fiercest attack on family support in the history of the welfare state,” she said. “This budget seems to be reaching back to a prewar approach to families. They’ve cut support for children more savagely than anything else so far, with billions of pounds being cut from child benefit, child tax credits, maternity support and child trust funds.”

She said her research showed that women would suffer disproportionately, even beyond the cuts to family benefits.

“Even if you put aside cuts in support for children, women are still more heavily hit,” she said. “Women are more affected by the cuts in things like housing benefit, cuts in upratings to the additional pension, public sector pensions or attendance allowances, and they benefit less than men from the increases in the income tax allowances. Even putting children aside, they are hitting women hardest.”

After looking at other budgets, she believes last month’s must be the hardest on women with Nigel Lawson’s 1988 budget – which abolished top rates of tax and froze child benefit and pensions – coming close.

The analysis looks at a net total of £8bn raised by 2014-15 through direct tax and benefit measures. It includes the effects of raising the personal tax allowance, the increase in capital gains tax, the freezing of benefits and the changes to pensions. A typical assumption in the analysis is: “94% of child benefit recipients are women, so of the £975m saving from child benefit, it follows that 94% (£913m) is coming from women and the rest from men.

“However, on capital gains tax around 27% of receipts currently come from women, so of the £925m additional revenue, 27% (£249m) is coming from women and 73% (£676m) is coming from men.”

The analysis also includes the impact of changing to using the consumer price index for calculating benefits and tax credits.

The Commons library comes up with a weighted average in order to take account of the different impact of each of these on women and men. Men will pay £2.2bn while women will pay £5.8bn.

The figures do not include the impact of measures such as the £640m council tax freeze or the abolition of the child trust fund. Nor do they include indirect taxes such as VAT. They do include the effect of cutting the health in pregnancy grant and the Sure Start maternity grant.

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BT undercuts Sky and Virgin to offer Sky Sports 1 for £6.99 a month to customers signing up for other services

BT today launched a package allowing its customer to view Sky Sports from as little as £6.99 a month on top of the basic monthly subscription.

The telecoms provider is offering Sky Sports 1 for £6.99 a month, or both Sky Sports 1 or 2 for £11.99, to customers willing to sign up to other services, such as broadband and telephone, for a minimum of two years.

This is cheaper than both Sky and Virgin, which charge £9 and £13.50 respectively a month for Sky Sports 1 or 2 and £27 or £28.50 respectively for a Sky Sports package that includes ESPN.

A basic monthly subscription to either Sky, Virgin Media or BT is £18, while monthly line rental differs from £11 with Sky, to £11.54 with BT to £11.99 with Virgin Media. While BT remains cheaper for the monthly cost of sports channels, unlike Sky and Virgin Media customers, its customers will also have to pay set up and set top box costs of £60 for its basic bundled package.

However, a BT basic bundle that includes both Sky Sports channels and ESPN works out around £100 cheaper in the first year than the equivalent with Sky or Virgin, even taking into account the set up costs, according to price comparison website Digitalchoices.co.uk. Once the set up costs have been paid, it is £160 cheaper than its rivals in year two.

“With first year cost savings of over £100, BT has priced its Sky Sports 1 and 2 with ESPN offering to warrant serious consideration from anyone looking to bundle their TV with broadband and phone,” says Michael Phillips of Digitalchoices.co.uk. “If recent reports are true about Sky looking to increase its own channel pricing, then BT’s new offering could look even more compelling.”

Sky has said that it will raise prices for its Sky Sports channels from September, which will affect not just Sky’s customers but the wholesale costs BT pays for the Sky Sports channels. BT’s prices to its customers will then be substantially lower than it is paying for the service.

Phillips said that while BT’s pricing was compelling, Virgin, Sky and BT were offering slightly different packages for the price, and customers need to work out which elements were important to them before making a decision.

“It is worth remembering that for those interested in programming beyond sport, it [BT] doesn’t carry Sky1, which has a history of premiering key entertainment shows in the UK,” he said. “BT’s announcement is great news for people that don’t live in a Virgin Media cabled street, since there is now a competitive alternative to Sky’s own offering. Although BT’s Vision+ box is HD ready, there is currently only one real solution for those wanting their sport fix in HD – and that is Sky.”

For those interested in the broadband and phone side of the packages, Sky’s proposition is better as it offers free evening and weekend calls to UK landlines, whereas its competitors only offer free weekend calls.

Its pence per minute call rate is cheaper than Virgin’s and roughly in line with BT’s. On broadband, BT and Sky claim to offer a speed of up to 20Mb, compared to Virgin’s 10Mb, while BT has a broadband download limit of 40GB compared to 2Gb with Sky and unlimited downloads with Virgin.

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Investment product promises to maximise earnings on slow growth in the market, but financial advisers are sceptical

Cater Allen Private Bank has launched a structured product promising to return up to 200% of any growth in the FTSE 100 during a six-year period, capped at 50% of the initial investment. The bank says the Capital Guaranteed Enhanced Growth Plan 1 is aimed at investors who believe the index will rise only marginally during the term, offering a high return on minimal growth.

Fernando Gasca, head of structured products at Cater Allen (which is owned by Santander), explains: “While uncertainty is still prevalent in today’s market, the long-term outlook for FTSE growth is more promising. This product will allow you to benefit from any future economic improvement and without taking the risk of any stock market correction.”

But financial advisers are not so sure. Ben Yearsley of Hargreaves Lansdown says: “I can’t think why anyone would want to invest in this product. I’m finding it very hard to get excited about it.”

Martin Bamford of Informed Choice adds: “This is fairly typical fare from a bank to try and get some cash in during a difficult period. But investors will find they are penalised if they make a withdrawal, while the averaging process Cater Allen is using could make a significant difference to the return investors will get.”

The product will take as its opening price the FTSE 100 index value at the close of play on 3 September 2010, but the closing index value will be calculated from an average of the index taken at 12 stages over the final year, effectively once a month throughout the last 12 months. The bank says this will, “ensure the plan is cushioned from any sudden fluctuations in the FTSE 100″.

But Bamford warns that by taking the average, investors could lose out on any surging growth in the final year. “This can really affect the return investors receive if the index rises significantly during that final year,” Bamford argues. “They’ll get an average, when investors in other products will see the full benefits of that growth. If investors want equity-style returns with less risk, they are better off building a balanced portfolio rather than investing in this kind of product.”

Yearsley says the cap on returns of 50% of the original investment means investors can easily generate the same or better returns elsewhere: “The FTSE100 has a dividend yield of 3.5%, so if you invest in a simple tracker with dividends reinvested, you only need the index to rise by 25% and you’re on the same return as the Cater Allen product already.”

He recommends an absolute return fund that offers a high return of 7%, 8% or 9% per annum with limited downside – “something like the Gartmore European Absolute Return Fund or the BlackRock European Absolute Alpha Fund“.

The product is guaranteed by Santander, something Bamford says might not be so safe given the current state of the eurozone. Moreover, he reminds investors that six years is a long time in investment and a lot can happen. “We expect to see this kind of advertising at a time like this, preying on investors’ nerves a little. I’d think very carefully before investing.”

The Capital Guaranteed Enhanced Growth Plan 1 has a minimum investment of £10,000. The offer closes on 13 August 2010 and the product matures on 5 September, 2016.

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The government has quietly scrapped one of Labour’s flagship initiatives to encourage Britain’s financially excluded people to save.

The Saving Gateway, a scheme designed to encourage those on a low income to save by boosting every £1 saved by an individual with 50p from the government, was due to launch nationwide on 1 July. But on Tuesday as part of the measures announced in the budget, HM Revenue and Customs told the financial institutions that were going to be operating the scheme on behalf of the government that it would not be going ahead because of monetary constraints.

The decision was announced with one quick mention in the budget speech. But the first many of the institutions involved knew about it was when they received an email from the HMRC, saying: “The government has announced that the Saving Gateway is not affordable given the need to reduce the deficit.

“The launch of the Saving Gateway – which was planned for July 2010 – has therefore been cancelled. HMRC will take no further action to process any application for approval as a Saving Gateway account provider.

“HMRC and HM Treasury are grateful to credit unions, banks, building societies and their representative bodies for their interest in the Saving Gateway, and for their contribution to the development of the Saving Gateway rules and processes.”

The previous Labour government had conducted two trials of the scheme, giving incentives to up to 8 million people on certain benefits to save up to £25 a month over two years, up to a maximum of £600. At the end of that term, their savings would be increased by 50% – up to £300 – by the government.

Banks, building societies and credit unions had already invested in software and promotional literature for the launch and some potential savers had received letters informing them of their eligibility and telling them about local providers.

Julian Wellen of Lodge Lane and District Credit Union in Liverpool said: “One of our members called to say she had a letter telling her she could open an account. A few hours later, we received an email from HMRC telling us the Saving Gateway was not affordable, given the need to reduce the deficit.”

The Saving Gateway is the second savings scheme introduce by Labour to be scrapped by the new government: the Child Trust Fund, a scheme which gave children two vouchers worth £250 (£500 for children from low income families) to invest, and enabled friends and family members to invest tax free on their children’s behalf, was axed in May.

At the time, the Treasury said that it made no sense to borrow money now to help poorer people build up assets for the future when this borrowing meant they would have to pay higher taxes in the future to repay the debt.The Institute of Public Policy Research said it was stunned and disappointed by the axing of the Saving Gateway. Tony Dolphin, a senior economist for the think-tank, said: “It seems odd that a government that says it wants to encourage savings has got rid of two schemes which both got good results in terms of getting people to save. People who took part in the trials were developing the savings habit, and continuing to save after the two year period without the incentive.”

He added: “Getting rid of the Saving Gateway and the Child Trust Fund will save the government very little money in the grand scheme of things: £100m for the Saving Gateway and about £500m for the CTF. That’s nothing compared to the amount of tax benefits given to people savings in Isas, pensions and save as you earn schemes, which amount to billions and billions of pounds.”

Imran Hussain, a spokesman for Child Poverty Action Group, said the charity was more concerned about other changes announced in the budget in terms of their impact on children from low income families, but he added: “It’s a real shame that this move to help people build up savings to deal with crises, such as a boiler breaking down, should be scrapped. It was one of the few measures that directly tackled asset poverty.”

Ministers accused of ‘moving goalposts’ as greater life expectancy triggers pensions review

Government plans to increase the retirement age and reform pensions, unveiled today, have been criticised by unions and charities as “class war” and a plan to make pensioners “work till they drop”.

The Liberal Democrat-Conservative coalition announced a review designed to “reinvigorate the pensions landscape,” but the promise to move back the retirement age was attacked for failing to take into account the quality of work available and differing life expectancies between social classes, and for making pension plans unpredictable for those already in their fifties.

The Conservative work and pensions secretary, Iain Duncan Smith, and the Lib Dem pensions minister, Steve Webb, said they wanted to scrap the default retirement age of 65, and bring in the planned increase in the state retirement age eight years earlier.

The state pension age for men is now due to rise from 65 to 66 from 2016, and to 68 by 2046. Women will move to a state pension age of 66 a few years after men.

Duncan Smith said: “Britain used to have a pensions system to be proud of, but due to years of neglect and inaction we are left with fewer people saving into a pension every year and the value of the state pension has been eroded, leaving millions in poverty.

“We must live up to our responsibility to reinvigorate the pension landscape. People are living longer and healthier lives than ever, and the last thing we want is to lose their talent and enthusiasm from the workplace due to an arbitrary age limit.”

Webb said: “I’ve worked all my life to get a fairer deal for pensioners. Up to 10 million people are not saving enough and we cannot allow this situation to continue.”

He told the Guardian, he believed the pensionable age should be a better reflection of life expectancy, which is currently 77 years for men in the UK and 81 for women.

He said: “We do have to rebalance things. The two numbers – retirement age and life expectancy – currently have little relation now and there does have to be a link. Not a rigid rule, but more of a link. Some people are now having decades of retirement. In the short term we are reviewing retiring at 66, but very slowly we have to look at what sort of principles we apply beyond that.”

The shadow work and pensions secretary, Yvette Cooper, said the previous government had been looking at a more steady increase in retirement age which did not carve through people’s pension plans.

Raising the pension age sooner was unfair on people nearing retirement, she said, and she accused the government of “moving the goalposts” for people in their 50s. “This is unfair for a group of people who haven’t got time to change their plans.”

The charity Age UK, formerly Age Concern and Help the Aged, also expressed concern about the switch. Michelle Mitchell, Age UK’s charity director, said: “The coalition must not make any rash decisions about the future of our pensions system. Before rushing through any increase to state pension age, the government must first reduce the health inequalities between rich and poor, and create a much fairer job market for older people. Failure to do so will force millions of older people, many of them poorer and with lower life expectancies, to work for longer or face another year trapped in unemployed limbo.

“Any review into bringing forward the state pension age increase must take into account the full impact on these workers. Clearly there are huge challenges ahead for the new government, but now is the time to renew the fight against pensioner poverty and commit to eradicating it once and for all.”

Paul Kenny, the general secretary of the GMB union, was less understanding of any attempt to increase the retirement age. He said: “The government knows that manual workers in the industrial regions of the UK do not enjoy anything like the same life expectancy as professionals or other classes or employees. To force someone who has done a lifetime of toil on building sites, in farms or in factories to work until they are 66 is completely unacceptable.”

Brendan Barber, the general secretary of the TUC, welcomed the decision to end the arbitrary retirement age, but said: “Raising the state pension age over this short timescale is clearly driven by a desire to cut spending rather than a planned approach to introducing more flexible retirement.

“Raising the state pension age will hit the less well-off far more than the rich. Sixty-five-year-old men in Kensington and Chelsea can expect to live a further 23 years, while those in Glasgow only another 14 years.”

At the launch of its review today the government reiterated its intention to restore the link between rises in the state pension and earnings from 2011, as announced in the budget on Tuesday. However, the link will be to the consumer price index rather than the retail price index, currently the lower of the two measures of inflation.

Webb defended this saying there were “some years when it is higher, some when it is lower”.

The figures
Cost of a rise in life expectancy

Underpinning the drive across Europe to raise retirement ages is the explosion in the numbers of people living in retirement. By 2030 there will be 45 million more pensioners and 45 million fewer workers in the EU, according to projections.

In the UK the proportion of people aged 65 and over is expected to increase from 16% in 2008 to 23% by 2033. The Office for National Statistics said this year the number will balloon despite rises in the state pension age. “In 2008, there were 3.2 people of working age for every person of state pensionable age. This ratio is projected to fall to 2.8 by 2033, taking into account the future changes to state pension age,” it said. Bringing forward the state retirement age under the coalition’s plan will not alter this.

In each of the past three decades the life expectancy of a person aged 65 has risen by two years on average. For lower income groups the improvement in life expectancy is only one year per decade. In Glasgow the average male life expectancy for those born before the second world war is 69, but in some of the city’s areas is even lower; in the richer parts of London, the equivalent expectancy is 74.

For people born in 1981 the figures are spectacular: a woman in England is expected to live on average until 89.5, while a man will reach 86.3 years. For those who reach retirement age, which is the figure that matters to officials who must calculate how much retirement income they will consume, the figures will be even higher.

Campaigners point out that those in low income groups are not only likely to die earlier, they are more likely to be unemployed in the years before reaching their “retirement” age.

Estimates that one-third of 65-year-olds are unemployed are often used to show that many people will be at the lower end of the income scale, though it is not clear how many of these are economically inactive but have alternative sources of income.

Phillip Inman

Gordon Brown said:

“Step by step, we are reinventing the financial services industry after the global financial crisis and moving the balance of power back towards consumers. These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing.”

The Government’s agreement with the card companies will mean the most expensive debt is paid off more quickly, better repayment plans for new customers, a ban on credit limit and rate increases for people at risk of financial difficulty and a right to 60 days to reject interest rate increases. The Government estimates the new rights will save consumers almost £300 million a year and one industry forecast predicts customers will gain around £500m.

Payments will go towards debt with the highest interest rates first, reversing the industry practice that prevented consumers clearing their most expensive debt until after they had paid off debt at lower rates, including 0 per cent balance transfers.

Consumer Minister Kevin Brennan said:

“This is a big win for consumers and helps to put them back in the driving seat with their finances. When we asked the public what changes they wanted to see we discovered most people did not know the charges worked this way. They thought it was unfair and confusing, and they naturally wanted to pay off their most expensive debts first.

“This is a fair framework of rights and rules that makes sure easy and convenient lending for the majority doesn’t lead to unmanageable debt for the minority who may be in financial difficulty.”

Other measures designed to encourage responsible borrowing and lending and help people avoid taking on unmanageable debts include:

· The new Consumer Credit Directive regulations and OfT Irresponsible Lending Guidance to be introduced before the summer, requiring lenders to check customers can afford a loan, give clear information on new loans and give a 14-day cooling off period during which new loans can be cancelled. Lenders who fail to comply run the risk of having their licence to lend withdrawn.

· All consumers to have access to their credit records online for £2 or free of charge from June 2010, under a new agreement with the three main credit reference agencies secured by the Department for Business, Innovation and Skills. Access will be free for victims of ID fraud and people receiving debt advice.

· Stronger protections under the Lending Code agreed between the British Bankers Association and the Ministry of Justice, so that lenders consider reducing or freezing interest and charges, and accepting token payments, from people who suffer a sudden income shock.

· For those suffering the most serious financial hardship, proposals by the Department for Work and Pensions to reform the Social Fund, so that it will be more efficient, easier to understand, and families will be given independent money advice to help them manage their debts.

In addition, consumers who are at risk of financial difficulties will be protected through a ban on increases in their credit limit as well as the ban on increases in their interest rate, and card companies will work with debt advice agencies to agree new ways they will provide targeted support to consumers at risk.

The Government threatened regulation last year after it found that many credit and store card issuers were using customers’ minimum monthly repayments to pay low-interest debt first, leaving high-cost loans unpaid.

Now it and the industry have agreed five new “rights” for card borrowers.

Under a new right to repayment, issuers will agree to use customers’ monthly repayments to pay their most expensive debt first. For customers opening new accounts, the minimum payment will always cover at least interest, fees and charges, plus 1 per cent of the principal. Formerly, the minimum repayment often covered interest alone without denting the size of a customer’s loan.

Lenders will agree not to raise interest charges on existing loans for customers without giving customers time to reject them. Consumers will also have the right to reject raised credit limits.

The card companies will agree to work with consumer groups to “assess the case” for giving customers an annual statement that will allow them to compare charges with other lenders easily.

The new voluntary rules will come into effect by the end of this year, so that consumers do not have to wait for new legislation. However, the Government will promise today to place the new code on a statutory footing if companies do not stick to it.

The UK Cards Association, which represents the card issuers, and the Government estimate that the deal will cost the industry, and save customers, £533 million over the first two years of its operation.

Melanie Johnson, chair of The UK Cards Association, said: “We are pleased that … existing practices do not need to be overhauled. Now that we have an agreement in place, we can focus on the important task of implementing these changes so that customers can benefit. The key changes will be in place by the end of this year and will become part of The Lending Code.”

The latest industry data reveals that there were 30.3 million credit cardholders holding 58 million credit cards in the UK in 2009, down from the same number holding 66 million cards the previous year. Last year 61 per cent of credit cardholders paid off their bills in full every month, up from 55 per cent in 2007.

In his podcast this weekend, Mr Brown promised to “rewrite the rules on lending to end the sharp practices” of lenders. He said: “We will ban companies from hiking interest rates they charge, or increasing credit limits without being asked. Lenders that don’t comply will face tough sanctions, like having their licences revoked … Never again should banks and credit card companies encourage you to borrow more than you can realistically repay.”

Total household debt in Britain has reached £1,460 billion, of which £55 billion is on credit cards.

We are setting out five new consumer rights which we believe give consumers a fairer deal and more control over the way in which they can choose and use their credit and store cards.

The five new rights are:

Right to repay: consumers’ repayments will always be put against the highest rate debt first. For consumers opening new accounts the minimum payment will always cover at least interest, fees and charges, plus 1% of the principal to encourage better repayment practice.
Right to control: consumers will have the right to choose not to receive credit limit increases in future and the right to reduce their limit at any time; and consumers will have better automated payment options. Consumers will be able to do both of these online.
Right to reject: consumers will be given more time to reject increases in their interest rate or their credit limit.
Right to information: consumers at risk of financial difficulties will be given guidance on the consequences of paying back too little; and all consumers will be given clear information on increases in their interest rate or their credit limit including the right to reject.
Right to compare: consumers will have an annual statement that allows for easy cost comparison with other providers
In addition, consumers who are at risk of financial difficulties will be protected through a ban on increases in their credit limit as well as the ban on increases in their interest rate, and card companies will work with debt advice agencies to agree new ways they will provide targeted support to consumers at risk to help improve their situation before they are in too deep.

These new rights, together with the existing right to redress, mean a better deal for consumers, giving them improved control of their credit and store card borrowing.