Retirees will be particularly hard by soaring inflation in coming years, new research from Which? Money has revealed.
We’ve looked beyond the headline rates of inflation to identify the particular goods and services that impact retirees’ monthly budgets.
As you can see below, all of the items in our retiree basket have risen in price by more than the rate of CPI inflation in May 2017 (2.9%).
|Annual price rise (May 2017)|
|FUEL AND LIGHT|
|Liquid fuels (heating oil, kerosine)||22%|
|Coffee machines, tea makers||7%|
|Purchase of pets||6%|
|Holiday centres and camping sites||5%|
|Carpets and rugs||5%|
Certain foods are quickly becoming more expensive, most notably fresh fish (+17%), sugar (+15%), pork (+7%), bread (+6%) and chocolate (+6%).
Here, we’ll highlight how the rapid rise in prices will affect you and what you can do to lessen the impact.
- The full version of this investigation appeared first in the September issue of Which? Money magazine. Try Which? Money for two months for £1.
Pensioners more vulnerable to price rises
There are two main measures for inflation – the Consumer Prices Index (CPI) and the Retail Prices Index (RPI), which also includes mortgage interest payments and council tax.
CPI was only 0.3% in January 2016 and 0.5% in June 2016, the month of the Brexit vote. It then increased rapidly to 2.9% by May 2017 (down slightly to 2.6% in June and July).
Retirees are often hit harder by higher inflation than the rest of the population, because they’re more exposed to the rising costs of essential items and may not be able to increase their levels of income accordingly.
The state pension triple lock, which guarantees payments will rise by the highest of CPI inflation, average earnings or 2.5% each year, was designed to protect pensioners from being left vulnerable to price rises.
However, speculation is rife that the triple lock could be replaced with a more cost-effective alternative for the government after 2020, with the consensus being that the cost of maintaining it is unsustainable
Find out more: how much state pension will I get? – see our video guide
5 steps to mitigate inflation
Consumers aren’t powerless when it comes to combating inflation. Here’s our action plan:
Consider UK produce
Currency fluctuations can mean that UK-produced goods will be relatively keenly priced in the post-Brexit world. So consider buying British.
Index-link your annuity
If you’re still tempted to buy an annuity to provide a guaranteed income in retirement, make sure it’s index-linked. This will ensure you inflation-proof your income. Our guide on annuity options explains more.
Check your attitude to risk
Income drawdown offers you the chance to keep your pension pot invested in shares and investment funds after retirement.
You may need to take a slightly more risky approach to keep pace with inflation. See our video guide on income drawdown for more infroamtion.
Rethink your savings
It’s a challenge, but you need to ensure that your savings are working as hard as possible. We’ve listed our favourite options for to help your savings keep pace with inflation.
Shop around for car cover
With car insurance premiums rising to historically high rates don’t assume that your current insurer will offer a competitive renewal price.
Be prepared to do some shopping around and make a few calls in the month leading up to your renewal date. Our experts have listed eight top tips for finding cheap car insurance.