EXPERTS warned last week that government plans to outlaw age discrimination could wreck the retirement hopes of millions of people.

They fear that the reforms, which will be introduced by October 2006, will encourage firms to raise to 70 the age at which staff can draw their full company pension. Anyone who chose to retire before then — even at 65 — could see their retirement income slashed by thousands of pounds a year.

Experts are therefore urging savers who still want to stop work at the normal age to take action to make up a potential shortfall.

Pensions are the most taxefficient way of saving for retirement. If you are a basic-rate taxpayer, the government contributes 22p for every 78p you pay into a pension. Higher-rate taxpayers claim the extra 18p back through their tax return.

If your company offers a pension scheme, it is almost always worth joining because the employer will usually contribute to the plan.

If you think your company pension will not be enough to live on, ask for a forecast. You might then want to boost contributions.

If you are in a final-salary scheme or money-purchase plan you can make additional voluntary contributions (AVCs). Workers can pay up to 15% of their salary into their pension, including any AVCs. The limit does not include employers’ contributions.

If companies increase their retirement age, more people might look for an alternative pension that will allow them to draw on their fund earlier and without penalty.

You can access the money in a personal pension when you reach the age of 50, although the government plans to increase the minimum age to 55 by 2010.

You cannot normally contribute to a personal pension at the same time as a company scheme. However, people who earn less than £30,000 a year can pay into a stakeholder plan.

Tom McPhail of Hargreaves Lansdown, an adviser, said: “Employers are likely to water down benefits, so you should look at additional investments such as a stakeholder or Isas.”

He recommends stakeholder pensions from Standard Life, Norwich Union and Axa.

Isas are more flexible than pensions because you can access your cash at any time. Also, you do not have to use the money to buy an annuity.

If you have a personal pension or a company money- purchase plan, you usually have to buy an annuity, which pays an income for life, with the fund before you reach 75.

You can invest £7,000 a year in a tax-free Isa. If you start planning early you can build up a diversified portfolio. However, you should alter the asset allocation as you get older and move into less risky investments.

Philippa Gee of Torquil Clark, an adviser, recommends Gartmore UK Focus and Schroder UK Mid-250 for the early years when you should go all out for growth. As you get near retirement age, you need to shift the emphasis to lower-risk investments and funds that generate income.

Gee suggests Newton Higher Income, Investec Cautious Managed and the Threadneedle Strategic Bond fund.

The recent boom in house prices means that many people have wealth tied up in their homes. An equity-release scheme can boost your income when you have retired.

There are three types of scheme. Roll-up plans or lifetime mortgages enable you to take out a loan secured on your property and receive a lump sum. You do not make monthly repayments; instead the interest rolls up and the loan is repaid after you die, when the property is usually sold.

With reversion plans, you sell a proportion of your home in return for a tax-free lump sum. When you die the house is sold, so the lender gets back its share.

Home-income plans are like reversion schemes but the lump sum is used to buy an annuity.

The costs can be high. Roll-up plans charge about 7%, compared with a typical rate of 4% for a standard mortgage. You should discuss the inheritance implications with your family.