Inflation cuts value of retirement annuities

Persistently high inflation has cut the spending power of pensioners on fixed incomes, new analysis from insurer MetLife shows. Savings and annuities, for example, have fallen by 16 per cent over five years.

Increased utility prices have driven consumer price inflation to a high of 5.2 per cent, hitting the real value of fixed incomes. MetLife analysis found that a 60-year-old taking a £6,180 annual income from a £100,000 annuity fund would see its real value cut to £5,215.98 within five years if inflation averaged 3.45 per cent; within 25 years the spending power would fall by 57 per cent, to £2,646.83.

"The new retirement reality means planning for up to 25 years in retirement and even moderate inflation is a major risk to anyone on a fixed income," Dominic Grinstead, managing director at MetLife Europe said. "Providers need to focus on innovation and offer more flexible solutions that enable people to maintain control over their retirement."

However, for those approaching retirement and worried about inflation, there are options. Chief among them is to purchase an annuity that is designed to rise in value with increases in inflation.

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