FTSE 100 directors move money away from company schemes to avoid 50p-in-the-£1 tax rate

Company directors switched millions of pounds worth of pension contributions into cash last year to avoid a government clampdown on tax relief for wealthy pension savers, according to the Guardian's survey of directors' pensions.

Some directors were granted all of their pension contribution as a one-off cash lump sum while others received a proportion of the money as a separate payment.

Pension experts said most directors asked for cash instead of a pension to dodge a cut in tax relief affecting people with pension pots worth more than £1.75m. The 50p-in-the-£1 tax rate was implemented in 2006 on pots worth more than £1.75m, prompting executives to rely less on their occupational schemes and more on individual savings plans.

The tax changes have also had an impact on the clarity of company reporting on directors' pensions – senior members of FTSE 100 boardrooms include only a fraction of their retirement savings in their annual accounts. The move effectively takes their pensions out of sight and sometimes offshore away from the prying eyes of shareholders, the UK tax authorities and other stakeholders.

This trend is likely to spread after the chancellor of the exchequer, Alistair Darling, approved new rules in the last budget that will cut tax relief on pension savings in 2011 for those earning more than £150,000 to the 20p basic rate.

However, new tax rates on top pensions failed to stop company directors registering record pension pots in 2008, the Guardian's survey found. Foreign nationals topped the list. Bob Catell, the US-based boss of National Grid, has amassed £20.4m, while Unilever's chief executive, Frenchman Patrick Cescau, has built up £18.7m. HSBC's English chairman, Stephen Green, can count on at least £17.7m to provide for his pension.

The directors' pensions escape the worst of the tax clampdown after an amnesty three years ago allowed some wealthy savers to preserve their accrued rights.

It is understood Sir Fred Goodwin, the disgraced former boss of Royal Bank of Scotland, protected much of his pension under the complex "lifetime allowance" rules to maintain the tax rate on his income at 40%. Goodwin was awarded a retirement income of £703,000 by the board of RBS as part of a "golden parachute" that included a £2.6m bonus. He later took a £2.8m cash lump sum that reduced his pension income to £555,000. The furore that surrounded his departure escalated last spring when details of his payoff emerged. By June he had agreed to a cut in his retirement income to £342,500 a year. Despite hanging on to the combined lump sum and bonus of £5.4m along with pension income more than 55 times the government's minimum income guarantee, threats of legal action from the government to recover Goodwin's wealth evaporated.

In RBS's favour, the value Goodwin's pension was at least clear. But increasingly it is impossible to see from company accounts how much pension income directors have accumulated.

Last year's best paid chief executive, Bart Becht, took a "basic" pension contribution worth 30% of his 2007 base salary. The £282,000 payment was deposited in an "executive pension plan" that acts like a personal pension. Like most other top executives, much of his remaining income – in Becht's case £36.6m – is expected to be channelled into other investments.

Bob Diamond, president of Barclays, keeps most of his fund outside Barclays' scheme. Last year he was paid £17.5m, but only £250,000 as base salary and he put only £7,000 into the company scheme.

The generous pensions amassed by Britain's corporate leaders are in stark contrast to the collapse in retirement schemes for workers. Since Labour came to power in 1997, private-sector pension participation rates have fallen from 52% to 42%, equivalent to 800,000 people losing pension provision. According to the Office of National Statistics, people on low incomes are the worst hit – only 21% of men, and 32% of women earning £300 a week or less are making contributions to their employer's pension scheme.

Millions of workers have also been thrown out of the generous final-salary schemes that guarantee to pay between a half and two-thirds of final salary as companies switch to cheaper arrangements. Today there are less than 800,000 workers in final-salary schemes that are still open to new members, compared with more than eight million workers in these schemes in 1968.

More than two-thirds of FTSE 100 directors remain members of final-salary schemes. They can usually gain their two-thirds of final salary in 20 years, rather than the standard 40 years that workers must wait, despite figures showing the 7,400 active schemes operate with a collective funding deficit hovering around £200bn.

If you live with a partner but aren't married, the law treats you as single. Harriet Meyer advises on how you can avoid financial pain in a break-up

Unmarried couples who live together risk a raw deal on property, pensions and tax if they split up, leading lawyers are warning. Regardless of how unromantic it seems, taking advice now could prevent walking into a "financial minefield" if you don't live happily ever after.

You'd be wrong, for instance, to think you have any common-law rights to an automatic share in your partner's assets over time.

"People have a whole host of misconceptions about their rights arising from cohabitation, which makes it very important to take advice," says Debra Emery, a family lawyer at Moore Blatch.

In law you are treated as an individual and, as such, have no automatic rights to assets owned by your partner, no matter how long you live together - and this appears unlikely to change after the collapse of the Cohabitation bill in April, a private member's bill.

However, there are "cohabitation agreements" aimed at providing useful protection. "Whether they are enforceable remains a grey area but by simplifying who brings what into the relationship, you can avoid unnecessary complications and acrimony if you split," says Emery.

Such agreements differ from the marital pre-nuptial variety. With these it is the wealthier party that is often looking to protect their financial interests, hence their popularity among celebrity couples.

A cohabitation agreement is designed to recognise what each party has brought to the relationship. "It's a lot easier to set these things out at the beginning, rather than try to remember what happened years later," says Tony Roe, family lawyer at Reading-based Tony Roe solicitors.

Property

When it comes to the home you've shared, the law treats unmarried couples more like flatmates. In this case, a break-up will be governed by property law, which has no notion of fairness or reasonableness built into it.

"Even if you have lived with a partner for 20 years in his home, and have brought up children, you have no automatic legal right to a share in the property if he chooses to go off with a younger model," says Emery. "This could leave many women high and dry in the event things don't work out."

In this case, you're far better off being married, unless your partner is happy to agree from the outset that you will have a share of the assets if the relationship breaks down.

If you are buying a property together, consider whether to buy as "joint tenants" or as "tenants in common".

Choosing "joint" tenancy means you both own the whole property and, if one of you dies, the surviving partner will automatically inherit the other half. As tenants in common you each own a share; you can specify how much of it each party owns, for example 75-25. Alternatively, if you own your property and he moves in, for instance, his construction of a patio or refitting the kitchen could give him an interest in the equity if you face an acrimonious split.

"It's entirely possible that he could claim a share in its value if he could argue that he has improved it," says Roe. "Though this couldn't be just for a bit of decorating - the work would need to be substantial."

If you are renting together, put both names down on the tenancy agreement. If yours is the only name, you have sole liability for the debt which would be painful if you part and find you cannot afford the rent alone.

Salary considerations

Most couples earn different amounts. So you'll have to figure out which expenses will be shared, which won't, and if you're going to split expenses 50-50 or work out a ratio based on your incomes.

It might seem fair that the person who earns more should pay more, proportionally, of the household expenses. But not all couples see it that way, and this is a vital point to work out between the two of you.

Also, be aware that if one party is richer and tends to live flashier lifestyle, the poorer one is likely to save less as they try to keep up.

The solution is to share most expenses, but establish a standard of living that the less well-off partner is comfortable with.

Pension

If you're going to treat moving in together as a long-term commitment, you should inform the trustees of any company, or personal pension, that you want your partner to inherit your assets if you die before drawing your pension.

If you discover that they won't pay out to your partner, one solution may be to avoid nominating who should get the death-in-service payment at all.

That way the money will be paid into your estate when you die and you can then leave the amount in your will to your partner.

However, take some advice on this and any inheritance tax implications.

Wills

Also, consider that under intestacy rules, any other assets will pass to the immediate family upon a partner's death, unless a will has been made in favour of the surviving partner.

For example, if you are not married, have no children and there is no will, your parents would automatically become the recipients of your property.

While people living together for two years immediately before the death can claim for "reasonable needs", and a home can be included, this involves challenging the family's legal position - and you may be liable for inheritance tax.

There is no tax liability if you inherit your primary residence as spouse, but you may face a tax liability if you inherit as a cohabiting partner.

• Are you living as an unmarried couple? Did you talk about your finances before you moved into together or is the subject the elephant in the room? Let us know your views at cash@observer.co.uk or write to us at Cash, The Observer, Kings Place, 90 York Way, London, N1 9GU.

• Where to get advice: Government website www.advicenow.org.uk/livingtogether produces a free living together agreement (applicable to those living in England and Wales only) which should help to protect both partners from whatever might happen to the relationship in the future. Depending on your situation, putting in place a cohabitation agreement with advice from a solicitor could cost anything from a few hundred pounds to thousands - but these can go into more detail than the government's version.

As the unions gather, the party needs to shore up its core vote – and remove benefits from those who don't need them

Another party conference season, another rift between Labour and the unions. I can't remember an autumn in the last decade when I haven't been told that the unions are getting very fed up with the Labour government, and unless there is a move to the left the funding could dry up. This year is no different, with the joint general secretary of Unite, Derek Simpson, complaining that Labour has failed to keep in touch with its core vote.

Simpson, whose union contributed £15m to Labour's coffers last year, warns darkly that a policy change is needed, and that "if the people in the party can't change the policy, then we need to change the people in the party". A barely veiled threat to ditch Gordon or lose Unite's money? Not yet, though the grumbles from the brothers meeting in Liverpool this week for the TUC conference grow louder and louder.

Labour leaders have always batted off the unions strongest demands, but this year there are signs that both Gordon Brown and David Cameron realise the unions are going to play a key role in delivering the spending cuts that all now agree are needed. It is, after all, their members who are likely to face the worst pain and uncertainty as the cuts bite. So last week Brown invited key union leaders in for a curry lunch – while Cameron met the TUC general secretary Brendan Barber, and emerged talking of "finding a consensus" over the divisive issue of public sector pensions.

For now, the unions' rhetoric is strongly opposed to all cuts and changes to pension provisions. So if Labour wants to keep the unions on board, the party is going to have to distinguish Labour cuts from Tory cuts, in a way that mobilises the maximum support.

Up to now, ministers have portrayed the difference with Team Cameron mainly as a matter of instinct and timing. The Tories, they say, instinctively want to protect their rich friends first, which is why – as Ed Miliband argued yesterday – they have stuck with their pledge on cutting inheritance tax, despite expressing shock and despair about the public finances.

The second line of Labour's counter-attack, which is that the Tories would cut earlier, imperilling the weak recovery, strikes me as weak itself. If everyone knows pain is coming, vague promises to delay the evil day won't encourage many voters to stick with Labour.

There are just over 6 million people employed in the public sector, though only around 520,000 of them are civil servants – the vast bulk work in local authorities, education and the health service. Out of a total working population of 29 million that is a very substantial chunk; and to the 6 million can be added many in the private sector who depend on public sector contracts. So questions about how many of them would still have jobs, and what would happen to their pensions under the Tories, are hugely sensitive.

The Conservatives, understandably, have been reluctant to spell out what the future holds for them. Luckily, we have a reasonable crystal ball to read, in the shape of proposals from the Institute of Directors and Taxpayers' Alliance discussed last week. These are not official Tory policy, obviously, but they show the thinking and groundwork that the party is also crawling over.

The ideas include a 10% cut in the civil service – 50,000 jobs gone for starters – and then "non frontline" cuts in health, education and local authorities, a one-year freeze in public sector pay, possibly continued for a second year (excluding only servicemen and women in conflict zones), big rises in pension contributions for public sector employees in unfunded schemes, and much more. Add the possible axing of major public investments in everything from roads to military hardware, and trade unionists have a lot to worry about.

These figures have to be balanced against polling evidence showing a big majority of the country prefers spending cuts to higher taxes. But that's when "cutting the size of the state" and "eliminating waste" are still being used as mealy-mouthed generalities. Specific tax rises sound sharper, and more painful so long as everyone can comfort themselves that when it comes to job cuts, "the Tories don't mean me". But unless you are a cancer surgeon or in the SAS, they probably do. As that message starts to hit home, these polling numbers will probably change.

So how can Labour remain honest about the need for cuts and yet persuade millions of worried people that it is still worth turning out to vote? It can be done. First, ministers would be well advised to make pre-emptive cuts in the "nice if we could afford it" frills of the public sector such as consultancy bills – while acknowledging that they are only frills, the edge of the problem.

Next, they have to look hard at middle class benefits, as indeed the IoD/Taxpayers' Alliance are doing, and the Conservatives will too. In these hard times, there are still plenty of higher-rate taxpayers getting help who could manage without it. I've always supported the idea of universal child benefit. But if there have to be cuts, then taking away child benefit from the better off, and the winter fuel payment from richer pensioners, would seem sensible ideas and are on Labour's agenda.

If it were still 1996, or even 2001, this would have been suicidal. The whole game was about triangulation and persuading the floating, aspirational middle class voters to back New Labour. But times have changed. Millions of these people – though not those in the public sector – have already defected in their minds to Cameron and are a lost cause for Labour. What would be catastrophic would be the simultaneous defection of Labour's core vote.

Ministers and ex-ministers talk about the difference between an election in which Labour lost – but with percentage support in the early 30s – and one with support in the low-20s. It is the difference between a party able to regroup in opposition and exploit the tough times the Tories face, and one on the edge of disintegration. Remember that Cameron's plan to "cut the cost of politics" is code for a massive rebalancing of the electoral map in the Conservatives' favour – the fewer MPs there are, the better the Conservatives will do.

So Labour would be advised to listen to the unions for once. Simpson certainly doesn't have all the right answers, but he and the MP Jon Cruddas are right to be talking about the key Labour message. The unions, for their part, must realise that while Labour's prospectus of tough choice ahead isn't encouraging for them, Cameron's will be a lot worse.

Hard-up British pensioners do no have enough money to retire

One in four of people of retirement age cannot afford to leave their jobs and will have to continue working indefinitely, researchers have found.

"Falling house prices, shrinking pension pots and the need to support financially dependent children have created a perfect storm for retirement plans," said Simon Lough, chief executive of Heartwood Wealth Management, which commissioned the independent research of almost 2,000 people aged 55 and over.

"Since we conducted this research last year, baby boomers have found themselves forced to stay in semi-retirement for even longer as many simply can't afford to stop working."

The number of older employees has risen by 97,000 in the past year. There are now 1.33 million workers above retirement age in the UK.

The survey demonstrates the bleak choice facing 11.5 million pensioners in the economic downturn: despite having saved throughout their working lives for a comfortable retirement, many have to carry on working or try to make do with a drastically reduced income.

Overall, more than half of those questioned in the ICM survey said they would be unable to afford to stop working at retirement age. A third said they were having to stay in employment because they had suffered a fall in the value of their assets. A person who had £50,000 in a savings account in August 2006 would expect £130 a month in interest, compared with only £40 now. A quarter of those questioned said they were unable to use pensions to realise their retirement plans because their children still needed financial support.

The survey highlights how the number of people working on after reaching retirement age has shot up while younger workers are losing their jobs. This month, official data showed that youth unemployment is soaring, with one in six 18 to 24-year-olds out of work.

As the recession continues to affect the young, leaving home may become increasingly unaffordable. These younger workers are, consequently, having to turn to their ageing parents for financial support.

The number has increased so markedly in recent years that they now have a name of their own: kippers, or Kids In Parents' Pockets Eroding Retirement Savings.

The Office of National Statistics, found that most "kippers" are young men. Almost a third of men aged between 20 and 34 live with their parents, compared with less than a fifth of women. The trend for young people returning home has emerged over the past eight years and in that period the number has risen by 300,000 to include two million young men.

The survey shows that for semi-retired people over 65, the situation is no better than for those approaching retirement: 49% said financial pressures were forcing them to delay full retirement. More than a third of those said they wanted to achieve their pension plan target before retiring fully and almost two-thirds said they would have to continue working until they were made to stop. Just over 6% anticipated having to work for another 10 years.

The research comes after last week's announcement by the Trades Union Congress that most pensioners were living on less than £5,000 a year.

Unison was accused of "sheer hypocrisy" last week for scrapping its final salary pensions – despite campaigning against similar cuts for public sector staff – after its pension fund deficit doubled to more than £120m.