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London,
15
August
2017
|
10:54
Europe/London

Inflation squeeze as households need to find £19.5bn to maintain standard of living

Andrew Tully, pensions technical director, Retirement Advantage
Very few people currently buy an inflation proofed income at retirement. The new retirement accounts can create the flexibility for people to bank a guaranteed income to pay the bills while also leaving money invested to pay for life’s little luxuries and help protect against inflation
Andrew Tully, pensions technical director, Retirement Advantage

The latest data shows UK inflation (CPI) grew by 2.6% in July 20171. This change in inflation leaves UK households collectively needing to find an extra £19.5n2 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 £715 a year to maintain their standard of living compared to a year ago.

Andrew Tully, pensions technical director, Retirement Advantage commented: ‘We are feeling the pinch as we battle with the bills going up and trying to balance our household budgets. With no signs of inflation falling, and wage growth flat, living standards will continue to be hit and we all feel poorer.’

The rising costs of living can disproportionately affect people with fixed incomes, including retirees who typically live off pension income. Over the course of a 20 year retirement, if inflation averaged 2%, the typical retired household would need to find a further £187 a week to maintain their standard of living, an increase of 48%.

Impact of inflation on retired households who currently spend £386 a week3

Average inflation

Over 10 years (an increase of)

Over 20 years (an increase of)

2%

£470 (£84 extra a week or 22%)

£573 (£187 extra a week or 48%)

3%

£518 (£132 extra a week or 34%)

£697 (£311 extra a week or 80%)

Andrew Tully said: ‘Over a typical retirement the buying power of your income could halve if inflation averages 2%. Building some form of protection against the ravages of inflation is important if people want to maintain their standard of living.

‘Very few people currently buy an inflation proofed income at retirement. The new retirement accounts can create the flexibility for people to bank a guaranteed income to pay the bills while also leaving money invested to pay for life’s little luxuries and 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.’

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  1. Source: Statistics Consumer Price Index (July 2017).
  2. Source: Retirement Advantage calculations based on the ONS Family Spending Report 2016
  3. Source: Retirement Advantage analysis of ONS Family Spending Report 2016 which shows the average household expenditure for the over 65 age group is £386.50.