Pension news: ‘Option’ will defend pensioners’ cash against inflation – ‘protection’ | Personal Finance | Finance
Last week it was announced inflation in the UK has increased to a 30-year high to 5.4 percent. It has caused concern for for many.
Chartered financial planner Makala Green spoke to Express.co.uk about the reprecussion this annoucment might have for pensions.
She warned “many pensions will have difficulty keeping pace” with the current rate of inflation.
However, Makala told Express.co.uk there is an option for pensioners which could help protect their finances against inflation.
She explained: “For those drawing or about to draw a pension, you have the option of opting for or converting your drawdown pension to an annuity.”
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What is an annuity?
It is possible to swap your pension savings for an annuity, an insurance product offering garunteed regular income for the rest of your life.
There are various types of annuity, offering different things.
How much of a payment you will get depends on the savings in your pension pout.
The rate of annuity you will be offered depends on your circumstances and the rate your chosen provider offers.
It can be a good option for those who want guaranteed income for life and to avoid iflation and stock market changes.
However, for those who wish invest their money or feel they may change their mind, an annuity is not the best option.
It is best to speak to an accredited financial planner before making any changes to pension plans.
How can those worried about inflation now prevent the rises eroding their finances?
Makala said: “It’s a crucial time to review your finances and pensions.
“Mainly, you have to think about whether the amount you’re drawing on is sustainable in the long run.
“Often, people want to take out a chunk of money from their pension, sometimes more than needed.
“To stop your funds from being eroded, it’s good to keep as much of it in a place where it’s growing at least as much as inflation and to ensure it will last you throughout retirement.
“A financial adviser can help with this and explain sustainability in an informed way, individual to your needs.”
Explaining why, for pensiners without annuities, rising inflation could cause issues, the expert said: “When inflation is high this can affect investment returns, and the value of your money can be at risk of inflation if not inflation-linked.
“Many pensions average for pension increases of two percent per year; however, the current inflation has more than doubled this, meaning the value you receive if taking a pension will be much less, and you will not be able to buy as much.”
