Retirement planning: Inflation can have a ‘huge impact’ on pensions – how to raise the pot | Personal finance | Finance


Pensions are a very popular tool for saving for retirement, but they are not immune to the effects of inflation. Although repos generally grow at a faster rate, inflation still has the power to erode the value of a repo pot over time. spoke exclusively to Romi Savova, CEO of PensionBee on how Britons can protect their pensions during the cost of living crisis.

She explained that with inflation hitting a 40-year high of 9%, savers will likely feel the pinch and their incomes may not stretch that far due to the cost of living crisis, which means their ability to make significant contributions to their retirement savings. can be threatened.

She said: “Beyond generally growing faster than inflation, pensions also help offset the impact of inflation by benefiting from compounding returns.

“This ultimately means that any contribution made now could have a huge impact on an investor’s eventual retirement fund over time.

“They are also a tax-efficient means of saving, as most savers will be able to take advantage of government tax incentives. For every £100 a saver pays into their pension, the government usually adds another £25 in the form of additional tax. Some savers may also be able to claim more tax relief through self-assessment if they are a higher or additional rate taxpayer.

READ MORE: Inheritance tax SURVEY: Are you worried your family will be hit by the 40% levy?

Romi suggested a few steps savers can take to protect their retirement savings during the cost of living crisis.

Tip 1) Consolidate old professional pensions:

She explained that by combining all existing pensions into one personal pension pot, savers can avoid losing track of any hard-earned savings.

In this way, their personal pension becomes their “home” pot that they will keep until retirement, which means that they will never have to manage anything other than that and a current professional pension.

Tip 2) Set short-term savings goals:
There may be times when a saver may be able to contribute more or less to their pension.


Taking the time to put together a short-term, achievable savings plan can help keep savers on track in their savings journey, even in times of greatest financial stress.

Tip 3) Leave your pension invested:
Finally, she suggested that Britons leave their pension invested for a few more years, as this can significantly increase a retirement income.

If everyone can legally access their personal and professional pension from the age of 55 (57 from 2028), this does not mean that they should always do so, especially if they have other sources of income.

In April 2022, Ofgem raised the energy price cap by 54% which could add £693 a year to the average household bill.

This is bad news as many are faced with the rising cost of living.

According to The Guardian, some households could see their inflation rate reach 10% by the end of 2022.

One group that could see this happen is retirees or people about to retire, as they tend to use more energy to heat their homes during the day.

As the cost of living rises, retirees may be forced to take more money out of their pension to maintain their standard of living.

The steady cost of living coupled with market uncertainty prompted investors to withdraw more from their retirement pots.

Due to an increased need for cash to cover the cost of living and market uncertainty, the average value of pension income withdrawals increased in January and February this year, according to Interactive Investor, a trading platform online, which collected this data from its Self Invested Personal Retirement Product (RSPP).

Becky O’Connor, Head of Pensions and Savings at Interactive Investor, said: “Not only do older people face a disproportionate impact on their standard of living due to the higher than average proportion they spend for essential goods such as energy and food, but they are also more exposed to the slings and arrows of global stock market fortunes.

His research indicated that the average value of SIPP direct debit withdrawals in January was 8% higher than the average for the past four years. January saw an average withdrawal amount of £1,944, a 25% increase on the average withdrawal amount for the same month over the past four years.

“What we’re likely to see over the next few months is retirees paying more attention than ever to that fine balance between withdrawing what they need to cover living expenses and keeping enough in the pot to support them throughout their retirement,” Ms. O.’ Connor said.

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