Inflation has ravaged the value of the state pension, as 12 million pensioners got a pay rise of just 3.1 percent in April as the triple lock was axed, while consumer price growth hit 11.1 percent in October.
Inflation now appears to have peaked, falling to 10.7 percent in November and 10.5 percent in December. Sharper falls are expected.
So will the next year be any better for pensioners? It just might.
Inflation could be in full retreat by the end of the year, with accountancy group PwC predicting it will end 2023 as low as three percent.
That seems a long way off with food prices are still rising by 13.3 percent a year, according to the British Retail Consortium, while energy prices remain sky high.
Gas and electricity bills are expected to fall as European wholesale natural gas prices plunge, but we won’t see much difference until Easter, experts say.
We should see meaningful falls in inflation by the summer, when it could be down to five or six percent. At that point, the state pension increase should outstrip price growth, giving pensioners some respite.
Inflation has had “a devastating impact” on the purchasing power of our pension and Isa retirement savings, said Rio Stedford, financial planning expert at wealth manager Quilter. “This has forced people to work longer and delay retirement at short notice.”
As if that was not bad enough, last year’s global stock market crash has shrunk the value of pensioners’ workplace and personal retirement pots.
The FTSE 100 may be near its all-time high, but other markets are still well down and will continue to struggle until inflation is under control and central bankers such as the US Federal Reserve stop hiking interest rates.
Stedford said pensioners in drawdown or with stocks and shares Isas should try to stay invested to benefit when markets recover. Yet many will be forced to raid their pots as the cost-of-living crisis drags on.
The dwindling numbers who have retired on defined benefit final salary workplace pension schemes have more protection as they often get index-linked income, although some company schemes impose a cap on this, Stedford added.
After more than a decade in the doldrums savings rates shot up last year, with five-year fixed-rate bonds paying five percent a year at one point.
That was still just half the inflation rate, so even savers who shopped around for a top deal lost out.
Those who did nothing were in an even worse position, as savers leave a staggering £267.8billion in accounts that pay no interest at all.
A strange thing has happened in recent weeks, and it spells bad news for savers.
Banks and building societies have started cut their best buy rates, despite expectations that the Bank of England will hike base rates from today’s 3.5 percent to as much as four percent on February 4.
Savings providers are clearly calculating that this will be the last increase, as inflation fades thereafter.
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That is good news if true but it still means that pensioners with cash in the bank will get a lower return. It may be worth locking into a best buy fixed-rate bond either side of the next interest rate decision.
Kevin Brown, savings specialist at Scottish Friendly, said: “All savers can do seek out the best possible interest rate and for long-term savings, think about investing to help protect your money from inflation.”
Savings rates aren’t the only thing falling back, last year’s dramatic increase in annuity rates has also gone into reverse.
The amount of income a single 65-year-old could generate from a £100,000 pension pot jumped from less than £5,000 a year at the end of 2021 to more than £7,000 just one year later.
Now, it has retreated slightly to around £6,900. Again, lower inflation and interest rates assumptions are the reason.
Canada Life technical director Andrew Tully said anybody considering locking into annuity should not hold back in the hope that rates climb higher from here. “The biggest increases may now be over.”
The sooner we see a meaningful fall in inflation, the better. The problem is that many pensioners cannot hang on much longer.