No inflation, no problem?

Offically inflation is continuing to be maintained around 3% per annum. Yet you know this number can be mis-leading. For example, Prudential estimate that 'pensioner inflation' could be as much as 8% per annum. And if you are now approaching retirement, you can probably recall the dark days when official inflation was nearer 20%.

That experience should remind you that you not to be complacent about the impact of inflation on your living standards through a long retirement - even if inflation stays relatively low. Plus, over such a long period, you can't assume there won't be another double-digit inflation shock.

For example, with only 2.5% inflation the real value of your retirement income will be cut by 22% over 10 years and by nearly 40% over twenty years.

The answer to this problem isn’t necessarily to have increases built into your annuity income (in fact 80% opt for level annuities). For example, you may have other assets that could be used to generate extra income if inflation took off later in retirement.

However you approach this problem, do be sure to think it through carefully, as during a 20+ year period the possibility of some inflation shock is not insignificant. We will report on this issue to you if you opt for the comprehensive service level (that is option 2 or 3).

Thanks for your letter last week and for all your help in securing my pension. As you predicted Nor...
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