ARE you in your forties or fifties, in the decades approaching retirement? Then here is some information that could be vital for you.
This month, four groups of people have been identified who will be hardest hit by the current steep rise in the cost of living.
A new report from the Office for National Statistics (ONS) says that public sector workers, construction workers and manufacturing workers are in for a hard time over the coming year or years.
The fourth group – the one with which we will concern ourselves today – is pensioners.
Price inflation hit 7 per cent in March, the highest in 30 years. The Bank of England predicts it will rise to 7.25 per cent this month, and the show’s not over yet: it is predicted to breach 8 per cent in the summer.
The state pension, meanwhile, has not risen to the challenge. It has increased this year at less than half the rate of inflation, just 3.1 per cent, meaning that it simply does not buy as much as it did last year.
Those pensioners who also have a personal pension which they have converted into an annuity are also going to be affected. While those with inflation-linked annuities will see some increase in income, most annuities are level annuities which do not increase, and so, like the state pension, have seen their buying power eroded this year. This is likely to continue for the foreseeable.
Pensioners are getting poorer.
Moreover, more of their income is being eaten up by the cost of food, heating and essentials, as the fallout from the war in Ukraine and other global factors take their toll.
The Ukraine situation has sent the price of gas sky high, but we have been sheltered from the worst excesses by the cap on energy prices. Even with the cap, gas prices have increased 28.3 per cent and electricity by 19.2 per cent.
Bad as this is, it’s the calm before the storm. The energy price cap in Britain has just been raised again, and energy prices will now go up by a crippling 54 per cent compared to last year.
Oil has already led the way, with the price of home heating oil up 113.9 per cent in a year, says the ONS.
The price of petrol is linked to this, as petrol and diesel are both made from oil. Last March, the average price of petrol was 123.7p per litre; it has now risen to 160.2p.
In simpler terms, the cost of filling the average car rose by £20.08 in the past year to February.
Clothes prices were up nearly 10 per cent, and the cost of furniture was up over 17 per cent, the highest rise since records began.
This exacerbates the financial challenges facing pensioners.
Between them, Russia and Ukraine are called ‘the breadbasket of the world’ due to their massive wheat production: the International Food Policy Research Institute estimates that their exports represent 12 percent of all the food calories traded in the world.
I should say ‘represented’. Now that we have lost those wheat supplies, this forces up the price of our bread, pasta and grain products. It also forces up the price of animal feeds and fertilisers, which will filter through to the cost of meat on our supermarket shelves.
The standard of living that we took for granted five years ago has been hit hard by a series of unexpected global events, and no-one is harder hit than pensioners.
It shows that forward planning is essential, to get the most out of our pension savings; but we must act now, so that any changes we make have time to help our money grow in the run-up to our retirement.
Quality financial advice can help with that plan, especially if you belong to one of the four groups we mention here: construction workers, public sector, manufacturing, or already retired.
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com