Inflation has eroded the value of state pensions, with 12 million pensioners receiving just 3.1 per cent in April after the three-year lockout, compared to 11.1 per cent. -percent increase in consumer prices in October.
Inflation now appears to have picked up, falling to 10.7 percent in November and 10.5 percent in December. A sharper fall is expected.
So will next year be better for retirees? It’s just right.
Inflation is likely to reverse sharply by the end of the year, with accounting group PwC predicting it will end in 2023 at three percent.
It seems far-fetched when food prices are still rising 13.3 percent a year, according to the British Retail Consortium, while energy costs are still high.
Gas and electricity bills are expected to fall as wholesale natural gas prices fall in Europe, but we won’t see much change until Easter, experts say.
We should see inflation come down in the summer, if it could go down to five or six percent. At that point, the rise in state pensions should outpace inflation, giving pensioners a bit of a breather.
Rising costs have had a “devastating effect” on the purchasing power of our pensions and retirement savings Isa, says financial planning expert Rio Stedford. the Quilter wealth manager. “This forced people to work longer and delay retirement in the short term.”
As if that wasn’t bad enough, last year’s global stock market crash reduced the value of retirees’ workplaces and personal pension pots.
The FTSE 100 may be near all-time highs, but other markets are still well down and will continue to do so until inflation is under control and central banks like the US Federal Reserve stay on track. the rise in interest rates.
Stedford said pensioners on withdrawals or with stocks and shares Isas should try to stay invested to make gains when the market recovers. However, many will be forced to attack their pots as the cost of living crisis deepens.
The reduction in the number of retirees on the final salary of the workplace pension has more protection because they often receive an income linked to the index, although there is some companies even set limits on it, Stedford added.
After more than a decade in the doldrums, interest rates rose last year, with five-year bonds paying five percent a year at one point.
That’s still only half the rate of inflation, so even those hoarders who shopped at the high end of the market lost out.
Those who did nothing were in a worse position, as savers leave $267.8billion in accounts that pay no interest at all.
Something strange has happened in the past few weeks, and it spells bad news for rescuers.
Banks and building societies have started to cut their prime purchase rates, despite expectations that the Bank of England will raise its key rate from the current 3.5 per cent to four per cent. -hundreds on February 4.
Investors are clearly calculating that this will be the last hike, as inflation slows down after that.
READ MORE: The cost of living is coming down and life is about to get better
This is good news if true but it still means that pensioners with money in the bank will get lower returns. It may be worth it to get into the best bonds at the cost of interest rates on both sides of your next interest rate decision.
Kevin Brown, savings specialist at Scottish Friendly, said: “Any saver can look for the best interest rate and for long-term savings, consider investing to protect your money against inflation.”
Not only are interest rates falling, but last year’s inflation rate has also reversed.
The amount of income a 65-year-old can draw from a £100,000 pension pot has jumped from less than £5,000 a year at the end of 2021 to Over £7,000 a year later.
Now, it has fallen back slightly to around £6,900. Again, the assumption of low inflation and interest rates is the reason.
Canada Life’s technical director Andrew Tully said that anyone who is thinking about getting into annuity should not hold out hope that rates will go higher here. “The greatest growth may now be over.”
The sooner we see a meaningful fall in inflation, the better. The problem is that many retirees cannot stay longer.