Fixed income pensioners could see their spending power cut by 60% cent over a 20 year retirement because of the impact of inflation.
According to Prudential, inflation for retired people, dubbed ‘Silver RPI', is higher than the standard figure because pensioners spend more on goods and services such as food and fuel, which are subject to the highest rates of inflation.
The research from the insurer shows the average person retiring in 2011 expects an annual income of £16,600, but if that income remains fixed it will be worth just £6,700 in today's money in 20 years' time if inflation remains at its current level.
Silver RPI has averaged 4.6% per year since January 2008, according to Age UK, compared to the average 3.1% standard RPI over the same period.
Vince Smith Hughes, head of business development at Prudential, said: "There are alternatives to a fixed income in retirement, for example choosing a flexible income plan that has the potential to grow could help many retirees to mitigate the effects of increasing living costs.
"We recommend that people approaching retirement seek professional financial advice to help them understand all the retirement income options open them."
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