‘More despair’ for older Britons as inflation hike cripples retirement – ‘back to work!’

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Inflation hit 10.1 percent in July according to the latest statistics, and indicative analysis by the Office for National Statistics (ONS) suggests this may be the highest CPI rate since 1982. With prices soaring and a cost of living crisis continuing to brew, pensioners will find it harder to make their money last.

It could drive more back into work in order to compensate for the difference. 

Becky O’Connor, Head of Pensions and Savings at Interactive Investor, warned: “The latest inflation numbers will heap more despair on people trying to plan a decent retirement. 

“They will also dismay those who recently retired thinking they would be okay, but now can’t make the numbers add up. 

“Those who chose to retire early during the pandemic may now be regretting that decision. 

“It looks like ‘back to work’ will be the order of the day for older people who would like to enjoy retirement but can’t because of rises in the cost of living.”

Ms O’Connor highlighted this week’s Office for National Statistics (ONS) labour figures, which demonstrated a return to work and continuation of work for those over the age of 65.

The numbers have grown since the pandemic, with people reassessing their original retirement plans or putting dreams on hold.

However, the expert warned these numbers could swell further due to higher inflation.

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She continued: “In order to retire, people will need bigger pension pots than before to cope with rising prices, but at the same time, they are likely to feel even more cautious about using their retirement savings, for fear of running out of money too soon. 

“They are caught between a rock and a hard place. 

“The pressure of making pension savings last is great at the best of times. During the worst of times, it becomes too much. Working again starts to look like the best option.”

But of course, this is only true for those who do have the ability to work, as others may feel it is more difficult as they age.

Ms O’Connor added: “Work will not be an option for many older people. Those who can’t boost their incomes will find it harder and harder to cope this winter without more help.”

If people decide to withdraw from their pension to cover the rising cost of living, they should be aware of the potential implications.

A rise in the amount withdrawn from a pension from £5,000 a year to £5,500 a year to cover a 10 percent rise in prices could mean a pension running out two years earlier.

It would mean a fund running out at 83, rather than at 85 – which could make a substantial difference.

Similarly, in the short term, energy bills could end up taking up more than half of pensioners’ state pension income.

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This is likely to create a squeeze on the pockets of older people which may be difficult to navigate.

Ms O’Connor explained: “The average weekly state pension payment was £159.81 in February this year, or £8,310 a year. 

“A rise in energy bills to £3,582 in October would mean that energy costs would make up 43 percent of pensioners’ average income this autumn.

“This would leave those relying on the state pension with just £90 a week to spend on food, petrol and other basic living costs, such as clothing, home and car maintenance.”

Consequently, Britons may wish to consider all of the options at their disposal, and potentially seek guidance.

PensionWise is the Government-backed service offering free advice on what people can do next, or some may wish to seek a paid, independent financial adviser for assistance. 

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