Retirees fear inflation surge will wipe out their pension pots

Millions of pensioners have been left fearing the destructive consequences that rising prices could have on their retirement, after inflation surged to its highest level in nearly a decade.

The sharp increase puts over- 65s at risk of losing years of retirement income, as high inflation could wipe hundreds of thousands of pounds off their nest eggs. Consumer prices rose by 3.2pc last month, marking the fastest annual increase since 2012.

A survey conducted by LV, the pensions provider, found that one in five over-65s, equivalent to 2.5 million people, was worried about rising prices. The main source of concern was that their savings would be eroded by low interest rates and increasing inflation.

Savers of all ages in Britain will be dealt a blow as prices climb higher, with inflation far outstripping even the best savings rates on the market. However, pensioners will be particularly vulnerable. Rising prices can have a significant impact on how long it takes to exhaust a retirement fund. The higher the inflation rate, the more pensioners will need to withdraw from their nest egg every year to keep up with rising outgoings.

LV found that almost 10 million people in Britain did not know how to avoid running out of money. They risk exhausting their savings a decade too soon.

David Stevens, of LV, said those whose main source of retirement income was the state pension were most at risk. “Many will be financially squeezed as the cost of essential items like home heating rise while returns from savings accounts – which typically form the bulk of retirees’ savings – remain low,” he said.

If inflation rises even higher than the latest 3.2pc, pension savers with a “defined contribution” pension will be forced to take on more risk to keep up. Tom Selby, of AJ Bell, the fund shop, said that prolonged inflation could seriously damage those with their pension in cash. Mr Selby said someone with a £100,000 pension pot who had the entire amount in cash paying 0pc interest would be £ 82,000 worse off after 10 years if inflation ran at 2pc. The Government controversially suspended the earnings link of triple lock this month and this has raised fears among pensioners that the suspension would become permanent and the safeguard could be abolished. This would put pensioner spending power at risk.