Why pensions are safe no longer

THE impact of inflation is often most painful in retirement when there is not the same chance to boost your income through work.

Those retired from jobs in the public sector have also had their inflation protection tampered with in the same way as holders of NS&I Index-linked Certificates.

Tom Selby of AJ Bell says: ‘In the 2010 Emergency Budget the Government switched the inflation link from RPI to the lower CPI for public sector pensions – saving the Treasury billions of pounds.’

With the arrival of pension freedoms, where over-55s can tap into personal pension pots at any time, many are also taking a risk. One in three has dipped into their pension and simply moved sums to deposit accounts where inflation means they wither on the vine.

Care is also needed if you buy an annuity – a fixed income for life. Selby says: ‘If you buy one without inflation protection your spending power will decrease year on year.’

But annuities that offer rising income to beat price increases are

costly. According to provider Hargreaves Lansdown, a 65-yearold with a pension pot of £100,000 could buy a fixed annual income for life of £5,302, but just £3,186 if it rises each year in line with RPI.

Retirees who keep their pot invested, drawing an income as and when, must ensure the fund is in inflation-beating investments.