Rising inflation has taken a bite of 3.55 per cent out of pensioner income, says Key Retirement Solutions.

The advisory firm has calculated that inflation for single pensioners is three per cent a year, and 4.1 per cent for couples. This gives the 3.55 per cent average, and when contrasted the recent 2.5 per cent rise in the State Pension, means that pensioners are suffering a 'pay cut'.

"Inflation is reckoned to be a price worth paying in the short-term so that the economy recovers, but pensioners are suffering more than most," explained Dean Mirfin, group director of Key Retirement Solutions. "The Liberal-Conservative Coalition plan to restore the average earnings link for the State Pension is welcome but it won't take effect until next year. In the meantime the over-65s are seeing the value of savings cut and other retirement income being eroded by rising prices."

Meanwhile, Towers Watson expressed concern at the consequences of rising inflation that could be realised by DB schemes.

Rash Bhabra, head of corporate consulting at Towers Watson, said: "Inflation is good for borrowers and bad for lenders. In a defined benefit pension scheme, the members have effectively lent money to their former employer by agreeing to accept a pension in future in return for work they have already carried out. A sustained period of high inflation would make pension liabilities less of a burden on companies but would mean scheme members did not enjoy the standard of living they had expected in retirement."

Bhabra added that were inflation to risk further and stay high for some time, public and private sector pensioners would face problems. "However, the biggest losers would be people who had saved in defined contribution pensions and used the money to buy a level annuity. People making that choice get a bigger income to start with but their pension will not rise even if inflation goes through the roof."

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