A return to a high inflationary environment could prove lethal to retirement funds, effectively wiping out pensioner incomes, warns Rockingham Retirement.

Following a study of historic inflation patterns, Rockingham Retirement has said that inflation, even at modest levels, can have a devastating effect on an annuitant's income.

"Inflation may not be an issue in today's relatively low inflationary environment - but if it rises, as many commentators have suggested, to five per cent from today's sub two per cent, then that will wipe out 40 per cent of the value of a typical £80,000 pension fund in ten years - it is like paying higher rate tax twice," explained Steve Hunt, managing director at Rockingham Retirement.

Hunt argued that part of the problem when it comes to current retirement thinking is that too many people are wrongly advised over their retirement options and end up with a fixed annuity.

People who are without a flexible pension facility, such as a drawdown fund, he pointed out, will find that when high inflation returns "at some point over the next decade or so", it will have a devastating effect on their income.

Hunt added that the organisation's research showed that 90 per cent of people will swap their pension fund for an annuity on retirement. "We say that given life expectancy is rising at approximately five minutes per day, most of us are now a long time retired.

"Get it right, and the longer-term ravages of inflation can be offset: get it wrong and many people will find their retirement a struggle."

However, some employees are not even aware of where their pension is held, according to a study by Lincoln Financial Group.

Research conducted by the group shows that confusion reigns amongst UK employees, with two million adults admitting that they do not know which provider their pension is with or where their money is being invested. 48 per cent of pension holders also said they rarely review their pension option once they have invested, which Lincoln Financial Group says shows more needs to be done to promote the Open Market Option (OMO).

Simon O'Connor, head of products and marketing at Lincoln Financial Group, said: "With people not taking the time to review their pension options, it is not surprising that the majority are still unaware of the Open Market Option and so fail to shop around to get the best annuity for them on retirement. More needs to be done by the Government and the industry to ensure consumers are aware of their annuity options and make sure they get the best retirement product for their circumstances."

O'Connor added that he finds it "extremely worrying" to see so many adults overlooking these important decisions for retirement.

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