Inflation will erode future retirement incomes substantially, warns Prudential

Inflation will Hit Pension Incomes Over the Next Two Decades, Warned Prudential

Inflation will Hit Pension Incomes Over the Next Two Decades, Warned Prudential

A Prudential research reveals pensioners’ income will drop by over 60 per cent in the next twenty years due to inflation, if they took fixed benefits today.

The average annual income a retiree can expect to take is £16,600 in 2011, the life and pensions provider said. However, that amount will be worth £6,700 in today’s money if the income were to remain fixed.

That means pensioners will effectively be taking an income cut of £10,000 if the inflation continues at today’s level.

Pensioners tend to spend a higher proportion of their income for goods and services, the report observed adding that items such as food and fuel tend to have higher inflation, affecting their standard of living.

Pensioners would need to more than double their retirement income to £40,000 over the next two decades, if they wanted to maintain their current standard of living, observed Prudential.

“There are alternatives to a fixed income in retirement, for example choosing a flexible income plan that has the potential to grow could help many retirees to mitigate the effects of increasing living costs,” said Vince Smith Hughes, head of business development at Prudential.

A research conducted by Age UK found ‘silver’ Retail Price Index grew at an average 4.6 per cent since 2008, nearly 50 per cent more than the 3.1 per cent average annual inflation recorded by RPI over the same period.

“This report shows the importance of inflation and the need to shop around for the right annuity. While getting an inflation-proofed annuity will be more expensive than a ‘no frills’ approach, it’s a decision that demands serious consideration,” said Joanne Segars, chief executive of National Association of Pension Funds (NAPF).

“A much bigger problem is that the UK simply isn’t saving enough for its old age. Fourteen million people are set to retire on an income that they find inadequate,” she warned.

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