Stable 3% inflation eases pressure on pensioners – Aegon

February 14th, 2018

Inflation in the UK remained flat at 3% in January indicating levels have now peaked and pressure on fixed income households, including pensioners, would ease, according to Aegon.

Consumer Price Inflation came in unchanged on the previous month after a fall in oil prices was offset by prices for cultural goods and services, according to the Office for National Statistics.

Aegon head of pensions Kate Smith said that although inflation is still 10 times higher than it was two years ago at 0.3%, it’s hoped that it has now peaked, reducing pressure on household incomes.

However, she added: “Inflation will continue to hit people on fixed incomes the hardest, such as pensioners, for some time to come.”

“As people are living longer, with much of this spent in retirement, it’s vital they protect their savings from the erosive effects of inflation.

“Even at low levels of inflation £100 in today’s money could be halved in spending power in 20 years’ time.”

Smith said those with built in pension increases, such as defined benefit pensions and the state pension would be to some extent protected, but those with defined contribution pensions will need to “think very carefully how to protect the spending power of their retirement savings”.

She urged them to take financial advice on the issue.

‘Squeeze On Living Standards’

Retirement Advantage pensions technical director Andrew Tully was less optimistic, saying the latest numbers would “leave people reeling”.

“For people living off a fixed income in retirement, inflation of 3% will halve spending power in just 20 years,” he said.

“Recent market turmoil has shown that using drawdown to deliver retirement income is not without risk and a strategy that creates breathing space when markets take a wobble and help mitigate the effects of inflation is the ideal.”

According to figures drawn up by Retirement Advantage, the impact of 2% inflation on retired households who currently spend £396.35 per week would see that future spending power reduced to £266.87 in 20 years.

Meanwhile the impact of 3% inflation on retired households spending the same amount would mean in 20 years the household spending would have a value of £219.56.

Tully continued: “Inflation is the hidden force that can wreak havoc with household budgets and retirement plans. The latest numbers will leave people reeling and will hit living standards as we will all need to find that little bit extra to make ends meet.

“With wage growth stagnant, and inflation predicted to remain close to recent rates in the short term, the squeeze on living standards will continue.”

 

Source: Professional Adviser