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Anyone thinking
about retirement should consider the effects of inflation eroding
their income, as new data shows many people will see their retirement
income swallowed up by the basic costs of living, says Standard
Life.
Using official Government inflation figures and Office for National
Statistics data, Standard Life has calculated that someone with
a pension pot of £80,000, buying a level annuity, will spend
their entire income from both private and state pensions, on basic
living costs such as food and fuel, within 20 years of retirement.
However, the firm has only looked at what it classes as ‘essential
expenditure’, and adds that if you factor in non-essential
spend, the combined effect of the rising costs of living coupled
with a level income will be felt much sooner than retirement.
Andrew Tully, senior pension policy manager at Standard Life, said:
“The cost of living is rising fast for most people in the
UK, but this is particularly acute for pensioners. Their 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.
“Pensioners relying on a fixed income will be feeling the
pinch, with no sign of an immediate end to their misery. If pensioner
inflation remains at around six per cent per year, people with a
fixed income could lose as much as half of their spending power
over as little as ten years.”
Tully added: “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 bills.”
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Pensions Age June 2008
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