Six ways to boost your pension income

Pensioners have been hit hardest by plunging saving rates and rising inflation. John Fitzsimons outlines six steps you can take to boost your income.

Retirement has always sounded great to me. Take my grandparents, for example.

They live in a warden-assisted apartment block, which is honestly nicer than most of the hotels I've ever stayed in. They get to travel around for free, do everything at their own pace, when they want to do it.

What could be better?

The trouble is, things are not as rosy as they seem for most of the retired populace.

The pensions market has been in a bit of a state for the past decade, but the credit crunch and ensuing recession has made things even worse. Many pensioners rely on their savings to get by, but saving rates are now at utterly pathetic levels thanks to plummeting interest rates.

Couple that with inflation rates pushing the cost of living into uncomfortably high territory, and life as a pensioner begins to look pretty grim.

But fear not - there are six key ways that pensioners can make the most of their money, and even boost their incomes.

1) Get to work on a budget

Let's start with the simplest step you can take - though without question, it's also the most dull.

Sit down and go through each and every penny that goes into and goes out of your bank accounts. Then use this budget calculator from the FSA to tot everything up.

That's it. That's all you have to do.

If nothing else, it will give you a good idea of where you stand financially, and should there be a few outgoings that you can live without, get rid of them!

2) Get what you are due

Pensioners are entitled to a range of financial assistance, from certain tax allowances to welfare benefits.

These include the Pension Credit, which could mean extra money each week for those scraping by on a low income, and Council Tax Benefit, which even the Department for Work and Pensions (DWP) has admitted is not being claimed by enough people.

Check out the DWP website for a full run down on the benefits you can claim, I would also recommend the Help the Aged site, which has a whole raft of information documents on what you are entitled to, and how to claim.

3) Cut your energy costs

The Government has rightly earned praise for the Winter Fuel Payments, which are available to most people aged over 60 (though this will rise on an incremental basis up to 65 between 2010 and 2020).

However, there is another perk open to pensioners to help them cut their energy costs further, and get a few extra pennies in their pocket!

Those aged over 60 may be entitled to a Government grant to insulate and draughtproof their home. In some cases, grants are also available to install central heating.

Inevitably, how you go about getting your hands on one of these grants depends on where you live. For those of you in England, you will need to call 0800 316 6011 for full information, in Scotland 0800 072 0150, in Wales 0800 316 2815 and Northern Ireland 0800 181 667.

In addition, those that qualify for Pension Credit should also be entitled to Cold Weather Payments each week that the weather is extra cold, to help cover the extra heating required.

For 2008-09, that amounted to £25 a week, but is only paid when the temperature is freezing or below for seven days.

You should also make sure you are on the cheapest energy tariff. You can compare tariffs from across the entire market via our energy comparison service. On average, people save over £200 by switching tariffs, so it really is worth doing.

4) Buy up extra years

If you have recently reached State Pension age, or will shortly do so, there is a way to boost your pension payments, provided you are not expecting a full basic State Pension.

As of this April, pensioners are able to improve their State Pension by paying up to six years of voluntary National Insurance contributions for years going back to 1975.

The Pensions Service has published a couple of guides which give you a full rundown on how to take advantage of this new scheme, so be sure to have a look.

5) Get free advice!

You should never feel too proud or embarrassed to ask for help on any subject, and certainly not one which involves your money. Thankfully there are a number of outfits that are happy to talk through your situation and give you some decent guidance.

First, as always on this matter, is the Citizens Advice.

Age Concern also has a whole section of its website devoted to providing guidance and tips on all matters financial, which is well worth a read.

But my personal favourite is a programme by Help the Aged, named Your Money Matters, which is aimed at improving older people's understanding of financial issues, and to provide some real, practical help.

There are currently 12 projects nationwide, with details available on the Help the Aged website. Check it out!

Finally, it's worth reading the following articles in the lovemoney.com Retirement and Pensions archive:

6) Release equity

The last tip for boosting your income is a slightly controversial one - signing up to an equity release mortgage.

Back in the 1990s, equity release schemes had an appalling reputation, with many vulnerable pensioners being ripped off by some quite unscrupulous outfits. Thankfully, things are a fair bit better now.

If you fancy making use of the equity you have built up in your property, but can't face downsizing to take advantage of it, then equity release might just be for you.

The schemes come in various forms - you can get a lump sum, or a regular monthly income, or the ability to access your equity as and when you want to.

But remember, these schemes can be quite complex and will eat into the inheritance you can leave to your children, so be sure to talk to a financial adviser about the implications of signing up. There is plenty of information on the various types of equity release mortgage on the Safe Home Income Plans website, who are the main trade body for the sector.

Overall, things are likely to remain pretty tough for pensioners for a while to come, but there are ways to combat this. Make sure you get every last penny you are entitled to.

More: Help! I cannot afford a pension | Why delaying your retirement makes sense