Many of Britain's over-60s will experience a certain sinking feeling when they hear that the value of UK pension funds slumped 14 per cent last year.

This is the worst annual performance since the economic turmoil and plunging shares of 1974.

For many hoping to retire in the next decade, prospects have rarely looked bleaker.

When Labour came to power, pension funds had swelled to almost £800 billion as stock markets soared. Today, that figure is down to £525 billion.

The result is that prospects for many private sector pensioners are declining sharply.

Moneyfacts magazine says a 60-year-old man with a £10,000 retirement pot looked forward to annual income of £706 on retirement in January 2002.

By December 2002, the figure had shrivelled to £621.

Anybody relying entirely on the basic State pension is struggling too. It pays just £77.45 per week for a single person and £123.80 per couple from April this year.

The one glimmer of hope for older folk, however, is the soaring value of the homes they live in - which are usually fully paid for when they stop work. Many older people are earning more money, year on year, simply by sitting in their homes than by collecting a pension each week.

Independent financial adviser Key Retirement Solutions calculates the nation's retired homeowners saw the value of their homes leap £77.5 billion during the past 12 months as property prices surged by about 25 per cent.

In the South-East, this windfall was worth £15 billion.

Almost a million older homeowners have considered the idea of releasing capital by selling their homes and moving into a smaller property or by taking out an equity release scheme. Some experts believe equity release could eventually unleash £100 billion of spending power into the economy.

Currently, there are three standard ways of turning the rising value of bricks and mortar into cash.

Mortgage plans provide a
lump sum loan up to a specific percentage of property value, with interest (at a fixed rate)

rolled up and repaid after the sale of the property.

Reversion plans mean a percentage
of the homeowner's property is sold to a reversion company, with occupancy rights for life granted to the owner. The homeowner receives a cash payment to spend or invest.

Home Income Plans involve a
built-in annuity to provide regular payments for life, rather than a lump sum.

Bricks and mortar, clearly, can unlock thousands of pounds but there are plenty of prudent things which older people can do to save tens, even hundreds, of pounds towards day-to-day running costs.

Anybody with anything much in the way of cash savings (say £10,000-plus) really needs to be on the internet because best rates from lenders tend to be found there these days.

Building societies are better at advising of rate changes than before but only the internet - or Moneyfacts magazine, available in some libraries - gives a good market overview.

If cash can be set aside for several years, savers should use their tax-free allowance by saving up to £3,000 each year in Mini Cash ISAs offered by a variety of financial institutions.

Picking individual shares in current conditions is devilishly difficult.

Go for managed funds, which spread the risk and for mainstream, rather than high-risk, corporate bond funds most likely to maintain income through the economic storms which may well lie ahead.