Highlights

• Experts feel pensioners will be the worst hit by the rising inflation and may soon depreciate their pensions and savings.
• One in four retired women are dependent on state pension for income and over two million retirees receive less than £100 a week.

Though UK Chancellor Rishi Sunak failed to mention about pensioners in his autumn budget speech last week, experts feel pensioners will be the worst-hit class due to rising prices of food and energy. Rising inflation may soon depreciate their pensions and savings.

How Soaring Inflation would affect Pensioners?

The Centre for Economic and Business Research (CEBR) revealed that the retired couples may have to spend £70 more a week on necessities next year and the average retired household of two is set to spend about £57 a week more in 2021, as compared to 2016. Further, it is expected that the costs to increase by £670 more next year, which is around £13 a week.

With rise in state pensions by 3.1%, pensioner couples could get up to £25 a week in 2022, worse since 2016. By 2026, inflation may also expunge 12p off the spending power of each pound received by pensioners.

An estimated 5 million fixed-rate annuities do not increase with prices every year, which means that increase in inflation by a total 12% in the next five years and the annuities will be worth 12% less by 2026, making each £1 paid worth 88p.  

Pension Cutbacks

One in four retired women are only dependent on state pension for income and over two million retirees receive less than £100 a week. Still, the government is planning to suspend triple-lock guarantee for a year to save over £30 billion in five years.

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The Boris Johnson government agreed to hike state pension every year in line with the highest of either, inflation, average earnings or 2.5%. However, due to pandemic earning rise by 8.3%, the UK government decided to drop triple lock pension this year and increase state pension by September’s inflation figure of 3.1%.

Pensioners will loss £10 a week and those with old state pension will loss £8 a week under the triple lock.

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Incomes in Danger

According to the Association of British Insurers, there are around 6 million annuities in place that offers retirees a guaranteed annual income. Last year 7,000 annuities sold increased with inflation rate, while 41,500 were fixed rate.

As a result of inflation, pensioners with a flat rate annuity may see a drop by 12% in their spending power by the end of 2025 and pensioners with fixed rate annuity paying out £20,000 a year will miss out £460 in their spending power in a year.    

Savings Shrink

Retirees with easy-access saving accounts have low interest rates, but with inflation increasing the value of cash held in poor-paying accounts will be quickly eaten into. In September, interest rates in savings dropped from 0.46% a year before to 0.31% this year, which means £50,000 in savings will now return £75 less and £10,000 sitting in cash will lose £249 in value in 2022 alone.

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Prices Biting

Pensioners over-65 years of age spend around 12% of their household income on food as compared to 8% for under-30s, which indicates that as increasing inflation will hit the pensioners hardest.     

According to the Office for National Statistics, people aged between 65 and 74 spend an average of £61.20 a week on the grocery and people aged 75 and over spend an average of £47.70 a week.

Further, food prices have increased by 1.7% year on year and supermarkets have warned prices may rise over 4% by the end of the year, which means people aged between 65 and 74 may have to pay £159 more a year and people aged 75 and over may have to pay £125 more.

Costs and energy bills

The increasing prices of energy bills will hit the pensioners harder than the rest of the population, as pensioners over 65 years spend 6% of their monthly household budget on energy as compared to 3% for under 30s. Last month, the energy bills increased by 12%, and have been tripped to rise a further 30% in the spring.

Pensioners aged between 65 and 74 would see the portion of their budget spent on energy bills rise to 75 from 5%, an extra £11.45 a week or £595.40 a year and pensioners aged over-75s, may need to spend 10% of their budget on power bills up from 7%m which means they would be spending an extra £559.52 a year.

Bill build-up

Pensioner’s over-75s also have to pay for a £159 annual TV license and council tax may also rise up to 3%, adding £57 to the average bill of £1,898. The Office for Budget Responsibility also revealed that by 2026 households may have to pay £435 extra in council tax.  

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