Express on 31st August 2011
SOARING inflation could plunge millions of pensioners into
poverty as it cuts the real value of their funds by 60 per cent,
worrying new figures reveal.
A typical pensioner on a fixed income will lose nearly £10,000 a
year in spending power during the average 20-year retirement.
At least nine in 10 people with a private pension opt for a
fixed-rate income in retirement - which means around 15 million
people are facing a savings crisis.
Older people approaching retirement need to see their pension
funds more than double over the 20 years after they finish work if
they are to beat inflation, pensions giant Prudential has
Analysts said pensioners are the victims of what is known as the
"Silver" rate of inflation, because they spend a higher proportion
of their income than the rest of the population on price- busting
food and fuel.
Prudential's figures show that the average person retiring this
year expects an annual income of £16,600. If that income remains
fixed, it will be worth a mere £6,700 in 20 years - effectively a
£10,000 pay cut.
Assuming that inflation remains at its current level of 4.4 per
cent, pensioners will need an annual income of just over £40,000 if
they expect to maintain their standard of living for 20 years.
ARE YOU GETTING THE MOST FROM YOUR
Ros Altmann, former government pensions adviser and director-
general of the over-50s group Saga, said: "Older people are
suffering higher levels of inflation than the country as a
"Since 2007, pensioner inflation has been nearly 20 per cent.
Pensioners' annuity income has lost around a fifth of its buying
power in just four years.
"Saga has been begging the Bank of England to take the plight of
pensioners and savers into account. But our pleas have been
ignored, as policy focuses on protecting borrowers and banks
"The result is that millions of pensioners are becoming
poorer and poorer each month as prices soar.
"Those not yet retired can keep working perhaps to try to
protect themselves but those already retired on fixed annuities are
When workers retire they use their retirement pots to buy an
annunity, which guarantees a regular income.
But pension experts say 90 per cent of annuities sold are
"level" schemes because the types which rise with inflation are too
expensive. Tim Gosden, head of product development for Legal &
General's annuity business, said: "The average UK pension pot is
only around £32,000 which secures an annual income of £1,950 for a
65-year-old man based on current rates if the payments are not
"However, if they were to opt for a pension that increases by
three per cent a year, then the starting income drops to £1,410, a
28 per cent fall.
"If full index linking is required the starting income drops to
£1,173, a 40 per cent decrease. When faced with these figures, it
comes as no surprise that many choose to have their cake now."
Research by Age UK recently found that Silver - or pensioner -
inflation has averaged 4.6 per cent a year since January 2008 -
while the average annual inflation recorded by the Retail Prices
Index (RPI) over the same period is 3.1 per cent.
Vince Smith Hughes, head of business development at Prudential,
said: "Pensioners on a fixed income are particularly vulnerable
when it comes to rising living costs. Our figures demonstrate the
extent to which Silver RPI impacts on the spending power of those
Joanne Segars, chief executive of the National Association of
Pension Funds, said: "While getting an inflation-proofed
annuity will be more expensive than a 'no frills' approach, it's a
decision that demands serious consideration.
"The UK simply isn't saving enough for its old age. Fourteen
million people are set to retire on an income which they find