Ten ways to survive the recession

With the global economy now officially in a recession, here are 10 tips on how to protect your home, pension and savings.

1. Insure your income
The Government will help home owners who lose their jobs by paying the interest on mortgages of up to £200,000 from the 13th week after redundancy. But this will not help couples in which only one worker loses their job; neither will it pay for interest on other loans.

Alternatively, you could arrange insurance linked to your income to pay out monthly so you have funds to cover your debts. For example, a £35 a month policy with Pay Protect will insure 60pc of your gross earnings and pay them for a year, up to £1,000 a month.

Meanwhile, it is possible to specifically insure your mortgage repayments, usually for up to two years, by buying a mortgage payment protection insurance policy linked to your home loan. Do check the small print – many of these policies will not pay out if you are self-employed, work on a short-term contract or if your employer has already announced job cuts.

2. Pick a winning card
Paying off credit card and other consumer debts is vital. But card issuers are pushing up their prices and reducing "interest-free" periods. While it's been the norm to have 56 days to pay before interest kicks in, many cards have cut this to 50 days. Balance transfer fees are also rising.

If you need to switch to a cheaper card, Tesco and Barclaycard OnePulse both accept transferred balances, will charge zero interest for 14 months and still give 56 interest-free days, according to moneysupermarket.com, the comparison service. There is a 2.9 per cent transfer fee in each case, and after 14 months interest climbs to 14.9 per cent at Barclaycard and 15.9 per cent at Tesco. But don't do any spending on the cards during the 14-month interest-free period.

If you're not in debt, think about a cashback card which reimburses you for part of your spend. Shell MasterCard from Citi refunds 1 per cent of your spending and 3 per cent on your Shell fuel, while American Express refunds 5 per cent for the first three months up to £200.

3. Overpay your mortgage while you can
If you overpay you can also take payment holidays if you run into difficulty. But that aside, you could cut your mortgage term considerably. Over a 25-year period, the maths on mortgage overpayments certainly stacks up.

A homeowner on a lifetime tracker mortgage from First Direct paying around £1,000 per month in October would have seen their minimum payment drop to £690 now. If rates stayed at their historic low and the homeowner continued paying £1,000 per month, they could expect to save £16,000 over the term and pay off their mortgage nine years early.

4. Keep savings in an easily accessible account.
Savings rates have fallen from the giddy heights of more than 6pc but there are still rates around the 4pc mark. You might have to act quickly as interest rates are expected to be cut in the New Year.

5. Take control of your pension
If your pension is directly linked to the stock market, as most private sector plans now are, you may have watched recent roller-coaster share prices with trepidation.

If you are younger than 50, the markets should have recovered long before you retire. If you are older, most well-planned investment-linked schemes are so-called lifestyle pensions, which gradually shift investments out of equities into bonds as retirement approaches.

If you are close to your 50th birthday, however, it may be worth checking with your pensions manager – you may want to discuss with your advisers whether it makes more sense to put such "lifestyling" on hold until markets settle.

This may also be the case for anyone in their fifties; if a big parcel of shares is about to be sold, you may wish to consider delaying that temporarily.

More difficult decisions face those whose portfolios were risky in the run-up to retirement, and who could be sitting on losses. In this case, you have two options. You can work longer or delay taking your pension, perhaps by switching it into a drawdown scheme, which allows investments to continue until the market bounces again. Take advice, as the second option can be fraught with risks.

In any event, you have to crystallise your pension fund at 75, when you must buy an annuity.

6. Fix your retirement income
If you are happy with the size of your pension nest-egg then it might make sense to buy an annuity soon, which guarantees a fixed pension throughout your retirement. Annuity rates have risen marginally over the past year, but are expected to fall again as interest rates decline – this means you will get a smaller income from the same-sized pension pot.

7. Keep an eye on your final salary pension
If you have a final salary pension underwritten by the Government or a strong employer, you have nothing to worry about.

But if you are expecting a big pension from a company that you suspect may not survive the recession, then consider transferring out. If there is a black hole in your employer's pension scheme, your pension will be rescued by the Pension Protection Fund. But the most you can receive is £27,000 a year if you work until retirement, and those younger than 50 will only gain a maximum of £21,000.

8. Shake up your share portfolio
With interest rates on the way down, you could reorganise your investments to buy utility companies, supermarkets, Marks & Spencer, pharmaceuticals and tobacco companies, all of which are expected to continue paying attractive dividends.

Bryan Johnston, a director at the stockbrokers Bell Lawrie, recommends starting a monthly savings plan at once. "The market is completely detached from reality, and at some stage there will be a big bounce," he says. However, this strategy is recommended only for those with strong nerves.

9. Cut the cost of essential insurance
Do not automatically accept a renewal quotation for either motor or household insurance. Tell your insurer you are not happy with it and intend to shop around. They will normally reduce the price for you. It's worth shopping around anyway, as you may get it cheaper still.

10. Boost your income
Take on a part-time job or advertise for a lodger. The advantage of renting out a room is that it is tax-free under the Government's rent-a-room scheme. Unlike a part-time job, you can earn up to £4,250 a year tax-free. Part-time earnings, though, will be added to those of your main employment for tax and National Insurance purposes.