Pensioner inflation could erode entire monthly income within two decades of retirement, according to Standard Life.
The provider warns those with a pension pot of £80,000 buying a level annuity, will spend their whole monthly income on basic living costs, such as food and fuel within 20 years of retirement.
Standard Life’s research, which used Office for National Statistics data and Government inflation figures, also found income could be swallowed up sooner in retirement if non-essential spending is factored in and combined with rising costs.
Andrew Tully, senior pensions policy manager at Standard Life, says pensioners with a fixed income could lose as much as half of their spending power within a decade if pensioner inflation remains at approximately 6% a year.
Pensioner spending habits are driven by commodities such as food and fuel bills and these inflation rates are much higher than the overall UK inflation rate, he says.
“People approaching retirement need to make some stark decisions. Do you choose one of the options to inflation proof your retirement income, for example an index-linked annuity? This provides a way of keeping pace with inflation but will provide a lower starting income than a level annuity,” Tully says.
“Or you could go with the higher initial income from a level annuity in the hope that prices and inflation stabilises over time. However, new solutions are being launched which will help address these issues by investing in the stock market and also guaranteeing an income which pays the bill.”IFAonline
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