Everyone facing struggle to manage higher costs, says interactive investor.
The latest inflation data showing an annual rise in the Consumer Price Index (CPI) of 5.4% in December 2021, was published this morning.
‘Household services’, which include gas and electricity, as well as petrol, were among the biggest contributors to the rise.
The increase is the highest record since 1992, the ONS figures show.
Commenting on the rise, Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “Inflation is at its highest for a generation; now all generations face a struggle to cope with rising prices.
“The fact that this rise was expected doesn’t make it any easier for households to manage the steep rise in the cost of living.
“It’s clearly very hard for low income households already living on the edge to manage increases in the cost of essentials such as food and energy – these are not easy areas in which to make cutbacks – particularly in a cold winter.”
Impact on pensioners
“A large proportion of low income households are pensioners. Age UK has estimated there are more than two million pensioners living in poverty in the UK.
“Those receiving the state pension will receive a 3.1% uplift in April, which is dwarfed by the current level of inflation. The imbalance between state pension rises and inflation rates, which are likely to rise further by April, will provoke further calls for the Government to consider a more generous uprating that properly reflects the difficulty many older people now face.
“We saw from other ONS figures published this week that the number of older people in work has fallen significantly during the pandemic. Finding work is no easy task when you are in your 60s – this group survive on their pension alone, which is precarious at times of rising inflation.
“Inflation also further erodes the value of cash savings, which come with very low interest rates and which again, are often favoured by older generations who are withdrawing from their pensions. The value of wealth built up over a lifetime’s work is being eroded every day it is held in cash, leaving some at risk of running out of their private pension money sooner into their retirements. We are several interest rate rises away from this dynamic changing.
“High levels of inflation also make it harder for those trying to invest their pension for growth to keep that money growing in real terms. Returns from equities have evened out at about 5% over the years - less than the current rate of inflation.
“It’s really important for older people who are struggling to see if there are any benefits they are eligible for they are not currently claiming, such as Pension Credit and any other discounts targeted at their age group.
“Those with private pension pots they are trying to manage could consider allocating a higher proportion to equities to be in with a chance of beating inflation.
“Those older people who have started drawing from their pension but are still working and able to contribute to it will still benefit from tax relief on contributions up to £4,000 a year.
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