Inflation rises to 9.1 percent in another staggering blow for pensioners | Personal Finance | Finance
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Inflation has now hit a record 40 year peak, with figures published showing the Consumer Prices Index (CPI) rising in the year to May 2022. It means increased hesitancy about financial stability, especially for those who are more vulnerable.
Inflation remains well above the Bank of England’s target of two percent.
This is despite the central bank increasing interest rates in an attempt to address inflationary impacts.
The base rate is now 1.25 percent, pushing it to the highest level in 13 years.
The increase from one percent to 1.25 percent represented the fifth consecutive rise by the Bank of England.
READ MORE: Nationwide increases interest rate to 5% on key account
This is more than another £100 since April alone, creating worry amongst many who are already struggling with bills.
Similarly, inflationary rises have also been attributed to the energy price cap rise in April, driven by higher global energy prices, but it is not the end of the misery on this front as the situation is only set to become more challenging.
Energy prices are expected to skyrocket to a staggering average annual bill of £2,980 this October when the next energy price cap kicks in, according to Cornwall Insight.
Many retired individuals had been hoping to kick their feet up after leaving the workforce, and not worry about their finances.
In the current climate though, this is unlikely to be the case, and many will be looking towards the Government for assistance.
Chancellor of the Exchequer, Rishi Sunak said: “I know that people are worried about the rising cost of living, which is why we have taken targeted action to help families, getting £1,200 to the eight million most vulnerable households.
“We are using all the tools at our disposal to bring inflation down and combat rising prices – we can build a stronger economy through independent monetary policy, responsible fiscal policy which doesn’t add to inflationary pressures, and by boosting our long-term productivity and growth.”
Rising inflation, however, may present better news for the prospects of the state pension.
Yesterday, Prime Minister Boris Johnson vowed the triple lock would return next year after its temporary suspension.
The CPI inflationary figure as of September 2022 is likely to be used as the measure by which the state pension increases.
With the Bank of England predicting inflation will rise to 11 percent by the end of the year, it could mean a bumper increase for state pensioners.
Analysing what the inflationary rise means for pensioners, Alice Haine, Personal Finance Analyst at BestInvest, said: “While pension savers may consider reducing or stopping the pension contributions they make, as they focus instead on meeting their everyday bills, it is better to make cutbacks elsewhere as any money directed towards pensions and investments has a better chance of beating inflation thanks to the beauty of time.
“In turn, this will deliver a growth rate that combats the effects of inflation on your money.
“Pensions typically grow faster than inflation: between 2015 and 2019 pension funds grew by 7.4 percent on average a year – much higher than the 1.53 percent inflation seen over the same period.
“There are also generous tax benefits linked to paying into a pension as your employer will pay into it too and the government will boost your contributions with tax relief. Plus, your money will also benefit from the magic of compound interest along the way.”
Kate Smith, Head of Pensions at Aegon, added: “It has been positive that pension saving has remained relativity resilient during the covid crisis.
“However, the cost-of living-crisis could be the biggest challenge yet to pension saving and auto-enrolment putting the brakes on progress in this area, and worryingly we could begin to see a rise in those ‘opting out’ or cutting back on pension contributions to ease financial pressures.
“This could have significant long-term consequences, so it’s important people carefully consider the impact on their future finances before making any decisions to cut back on pensions.”
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