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This morning, the Office for National Statistics (ONS) announced inflation had eased slightly to 10.5 percent in the 12 months to December 2022. This is down from 10.7 percent the month before, suggesting inflation may be beginning to soften.
However, for people on limited incomes, the impact of inflation is still likely to be palpably felt.
The state pension has been guaranteed a 10.1 percent increase based on September 2022’s Consumer Prices Index (CPI) inflation figures.
It means those on the full new state pension will see their weekly payments rise from £185.15 to £203.85 – the biggest rise ever.
Some may get less than the full new state pension if they were contracted out before April 6, 2016.
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“For people on fixed incomes, especially those drawing on their pensions in retirement, a double-digit rise in state pension from April will offer little light at the end of the winter months.”
The sentiment was shared by Rio Stedford, financial planning expert at Quilter, who also expressed concerns.
He explained: “If inflation remains around 10 percent, your purchasing power is very quickly eroded if your money is held in cash.
“So, while the state pension will, at the very least, keep up with inflation through the triple lock, your private savings will not unless you do something about it.”
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Mr Stedford warned inflation could be “devastating” for those who have saved into a retirement pot.
It may mean individuals have to drastically alter their retirement plans, even at very short notice.
The expert suggested some may wish to keep their money invested, however, this means capital is at risk and people could get back less than they originally put in.
He added: “Choosing well diversified and risk appropriate investments is key for those nearing or in retirement, particularly with the spectre of inflation looming down.”
Alice Haine, personal finance analyst at BestInvest, said she was hopeful lowering inflation would perfectly “coincide” with the triple lock increase in April, to ensure pensioners are not left worse off.
However, she posited “money directed towards pensions” as a way to counteract the pressures of inflation.
Ms Haine added: “For pension savers looking to boost their retirement income, now would be a good time to increase pension contributions.
“That’s because any money invested in a pension not only benefits from the beauty of compounding over the long term, but also protects against income tax (which is on the rise thanks to frozen tax thresholds) because tax relief is applied to pension contributions at their marginal rate of income tax.
“While basic rate taxpayers get 20 percent added to their pot with each contribution, those on the higher 40 percent tax rate get a further 20 percent in tax relief, while additional rate taxpayers receive a further 25 percent back.
“For every £1,000 gross contribution paid into a pension by a 40 percent taxpayer, the net cost is just £600 giving their pot a generous £400 bump-up in tax relief.”
