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Pension warning: Retirees urged to 'keep a watchful eye' on inflation as it may 'creep up'


Inflation grew by 0.7 percent in January, which surprised many given the levels of economic uncertainty the UK faces. While the growth was relatively low, warnings have emerged that long-term repercussions of increasing inflation could harm retirement prospects.

Rachel Winter, an Associate Investment Director at Killik & Co., commented on the figures: “In the month of January consumer spending traditionally goes down post-Christmas, so today’s reported rise in inflation is therefore surprising, particularly given the ongoing closure of non-essential shops, pubs and restaurants.

“Despite the Government preparing to reveal its roadmap out of lockdown over the next few weeks and millions continuing to be vaccinated, the hospitality, retail and leisure industries are still taking a big hit and this is likely to continue for at least the next few months.

“Economists have mixed views on where inflation could go from here.

“Further increases in unemployment levels could harm consumer confidence, with a resultant knock-on effect on inflation.

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“Anyone in, or approaching, retirement has to factor higher inflation into their financial planning for the years ahead, failing to do so runs the risk of their savings pot emptying faster than expected.”

According to the ONS, furniture and household goods, restaurants and hotels, food, and transport had the largest upward contributions to the change in the January 2021 12-month rate.

Douglas Grant, a Director at Conister, commented on the economic outlook for the UK following the release of these inflation figures: “The combination of continually depressed interest rates combined with lockdowns leading to consumers having higher than expected savings for this stage of the economic cycle has created a unique environment where lenders are flush with liquidity in a low-yield environment.

“The economy is like a coiled spring as lenders prepare for the potential of negative interest rates and look to deploy capital to support resilient business sectors.

“In the meantime many businesses are still relying on government backed schemes such as furlough, BBLS and CBILS for survival.

“While, these have played instrumental roles in keeping many resilient SMEs alive and acted as important triage systems to identify and support viable businesses that needed credit, we must now accept that we have passed this triage phase and instead it is imperative that we identify, prioritise and protect our most resilient individual business sectors and segments.”

Noting these elements is important as, according to the Money Advice Service, most people underestimate how long they’re likely to live and as such, underestimate how much money they’ll need in retirement.

According to analysis of ONS data, the Money Advice Service detailed a 65 year old man now has a 50 percent chance of living to 87.

For women, there is a 50 percent chance they’ll make it to at least 90.

For those who have only planned for 20 years of retirement, it is highly likely they’ll live longer than this and as such may find themselves struggling financially later in life.

It should also be remembered that the private pension access age will be increasing to 57 in the coming years, meaning people will have to wait longer to access their retirement savings.

State pension age is also rising, with it set to reach 68 by 2048.

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