Les Cameron, retirement expert at M&G Wealth, shares his views on how he sees UK inflation affecting retirees.
Les Cameron (pictured), retirement expert at M&G Wealth, says: “CPI inflation has hit a 30-year high at 5.4%. For those saving for retirement their money needs to work harder to keep its value. In simple terms, if you thought you could retire on savings of £100,000 but prices go up by 10% before you retire, you’ll need to save an additional £10,000 to have the retirement you had imagined. To achieve this, you may have to save more – but with rising costs this can be really challenging, take some investment risk if you have a lot of cash-based savings, or consider delaying your retirement.
“For those in retirement the opposite applies. If you already have an income of £10,000 a year and prices rise by 10% you will need your income to rise by 10% to be able to continue to enjoy your standard of living. Most incomes from pension schemes, and the state pension, will have some form of increases included but, with the removal of inflation-proofing from triple lock for state pensions, not many of these will keep up with inflation.
“Retirees are also likely to suffer from “Silver Inflation”. Essentially, retirees are more likely to spend time at home than when they were working, increasing their energy bills. As we know, energy bills are rising by more than the record CPI rises so inflation for retirees is likely to be much higher.
“Anyone funding their retirement or supplementing their retirement income with significant cash or cash-like savings, such as some National Savings & Investment products, should take action. Savings rates are substantially lower than inflation, so people need to decide whether to accept inflation eroding their standard of living, or to take some level of investment risk to try and get a better return and protect some of their wealth from being eroded.
“With inflation at 5.4% it takes a little over 12 years to halve the value of your money. What remains to be seen is whether this is a temporary spike in the rate which, in time, will settle back down to the Bank of England’s target of 2%, or if inflation remain at these higher levels for the longer term.
“If inflation remains high it will mean more pain for those saving for and in retirement.”