Protecting your retirement income has never been more important. Rising inflation (3.3% RPI – Retail Prices Index), and therefore living costs, erodes the value of your income while you work. But the extent to which inflation can also affect your spending power in retirement should not be underestimated.

Recent research by MGM Advantage found that up to 360,000 individuals retiring each year could see a combined £6.3 billion wiped off their income. This is based on annual inflation averaging three per cent over a 25 year retirement, which by 2025 would reduce the spending power of a £10,000 level annuity by 53 per cent. The CPI (consumer prices index) measure of inflation increased to 2.9 per cent in June, from 2.7 per cent in May. The RPI (retail prices index) increased to 3.3% in June, from 3.1% in May.

The MGM figures are based on an average pension pot of £33,000 and the most common choice of annuity, known as a level annuity.

With this in mind, there are steps you can take to protecting your retirement income from inflation, including:

  • Shopping around to compare the best annuity rates
  • Considering an enhanced annuity if you have a pre-existing health condition
  • Choosing an escalating annuity, though these may come with a lower starting income
  • Delaying your retirement or when you begin to take your pension income
  • Opting for income drawdown rather than an annuity, provided you understand the additional risks.

Get in touch to see how we can help with  planning for retirement, pensions and annuities. Please call Matthew Walne on 01509 410 364 for a no obligation chat at our expense.