Data released by the Institute of Fiscal Studies show poorer households, especially those with pensioners have been hit harder by inflation in the past decade than richer homes.
The 56 page report titled ‘The Spending Patterns and Inflation Experience of Low-Income Households over the Past Decade’ found that pensioners, particularly those depending on state benefits, were the hardest hit and experienced higher rates of inflation than non-pensioners.
The rate of inflation also accelerated to 4.6 percent between 2008 and 2010 for pensioners dependent on state benefits, while for the decade between 2000 and 2010 the inflation rate average was 3.6 percent.
Similarly the rate for pensioners not-dependent on state benefits was also higher at 4.3 percent compared to 3.4 percent in the past decade, the report observed.
Inflation rate for benefit dependents of working age was 4.3 percent compared to 2.9 percent for people not dependent on benefits.
One in five of the poorest experienced an average inflation rate of 4.3 percent between 2008 and 2010, while it was 2.7 percent for the richest fifth.
“During the period of the recession, dramatic cuts to interest rates reduced mortgage payments, which tend to be more important for richer households. At the same time the prices of gas, electricity and food increased and this hit poorer households harder on average”, said author of the report Peter Levell and Zoe Oldfield.
“This report highlights the pressures exerted by inflation on Britain’s pensioners. However there are a number of measures that pensioners can take in order to protect themselves”, observed Vince Smith-Hughes, head of business development at Prudential.
“While the majority of people still opt for level annuities at retirement, last year saw a 159 per cent rise in the number of people buying asset-backed annuities”, he said.
“This emphasises the fact that pensioners are keen to protect and even grow their income in retirement, a trend which will become even more widespread now that recent changes to retirement rules have broadened the product options available to pensioners. Yet with this increase in choice comes the fact that sound financial advice is more important than ever”, he added.