Inflation-proof pensions

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The Independent Online
The average retirement age in the UK today is 57. At that age a man can expect to live for another 18.5 years , a woman for another 23.5.

The average rate of inflation over the past 18 years has been 7.5 per cent. With a tick-up in the current rate, people who are retiring might consider it worthwhile to take a reduced pension initially - to protect their retirement income from inflation. One way to do this is to choose an annuity that will increase by 3 per cent,. 5 per cent, or 8.5 per cent, or by the rate of inflation - whatever that might be.

To achieve a 5 per cent annual uplift, a 55-year-old man, through Canada Life, would have to take a 38 per cent reduction in the initial payment; a woman of the same age would face a 42 per cent cut.

For 65-year-olds, the initial reduction would be 28 per cent for men and 33 per cent for women.

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