Inflation squeeze hits households to the tune of £21.7bn
The latest data shows UK inflation (CPI) grew by 2.9% in August 2017, up from 2.6% in July1. This change in inflation leaves UK households collectively needing to find an extra £21.7bn2 a year to maintain their standard of living compared to 12 months ago, according to Retirement Advantage.
Each household will typically need to spend an extra £797 a year to maintain their standard of living compared to a year ago.
Andrew Tully, pensions technical director, Retirement Advantage commented: ‘The rising cost of everyday living continues to hit household budgets. This squeeze on living standards affects the economy through our changing consumption habits and unfortunately there is no light at the end of the tunnel as the economic signs point to more financial pain with a rate of inflation higher than the Bank of England target in the short to medium term3.
‘Inflation can have a disproportionate effect on people relying on pension income to pay the bills. Although we’ve seen a move to drawdown since pension freedoms, many retirees continue to value the certainty that an annuity provides. However, over the last year around one in ten people4 have chosen some form of inflation link or escalation when choosing a lifetime income. Inflation can very quickly erode the spending power of a fixed income.
‘People looking to take a flexible approach to their retirement finances might want to consider the new retirement accounts. These products combine the certainty of an annuity within the flexibility of drawdown and guarantee an income to pay the bills while also leaving money invested to help with life’s little luxuries and can help protect against inflation.
‘A professional financial adviser can help you decide the best course of action for your personal circumstances and ensure you stay on track to enjoy the retirement you have worked hard for.’
- Source: Statistics Consumer Price Index (August 2017).
- Source: Retirement Advantage calculations based on the ONS Family Spending Report 2016 https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/datasets/householdexpenditurebyageofhouseholdreferencepersonuktablea9
- Source: http://www.bankofengland.co.uk/publications/Documents/inflationreport/2017/aug.pdf
- Source: Retirement Advantage applications for annuities.