Covid and rising inflation are having a pincer-like effect on finances, especially for older people, Andrew Tully has warned.
The technical director at Canada Life warned that, as UK inflation hit 2.1 per cent this week, breaching the Bank of England's 2 per cent target, more pensioners would need help to provide a buffer for their pension pots.
He remarked that the past 18 months or so since the pandemic hit Britain have naturally left many people "feeling the pinch", as the impact of Covid has caused incomes to drop for some households.,
Additionally, many people have been left facing redundancy.
And, with the news that inflation has ticked up to 2.1 per cent - far outstripping the 1 per cent pay rise the government gave to the NHS between 2019-2020 - this will add "further pressure, as we continue to battle with bills going up and trying to balance household budgets", he said.
But the problem is exacerbated for people who have already retired or are at the cusp of retirement.
Tully explained: "The rising costs of living can disproportionately affect people with fixed incomes, including retirees who typically live off pension income."
Over the course of a 20-year retirement, if inflation averaged 2 per cent, the typical retired household would need to find a further £187 a week to maintain their standard of living, an increase of 48 per cent.
Over a typical retirement the buying power of a person's income could halve if inflation averages 2 per cent.
Therefore, Tully said, building some form of protection against the ravages of inflation is important if people want to maintain their standard of living.
He added: “Very few people currently buy an inflation proofed income at retirement.
"Using a combination of drawdown and annuity can create the flexibility for people to bank a guaranteed income to pay the bills while also leaving money invested to pay for life’s little luxuries and help protect against inflation."
He urged individuals in this situation to seek professional financial advice.
This came as research from UK based money app Ziglu, showed that, with inflation factored in, the average interest rate is almost minus 2 per cent - meaning inflation is far outpacing any potential return on cash.
The research found the average interest rate on instant access savings accounts is only 0.165 per cent in the UK.
However, once CPI inflation is factored in, which is now at 2.1 per cent, the ‘real’ return drops to minus 1.935 per cent.
simoney.kyriakou@ft.com
