Retirement: Discover the number one fear of pensioners and our six top tips to deal with it


Discover the number one fear of pensioners and six top tips to deal with itWhat’s the number one fear for people in retirement?

Keeping fit? Staying healthy? Losing your partner? No, it’s inflation and the rising cost of living.

A recent survey by MGM Advantage has found that for 53% of people the rising cost of living is their biggest single fear in retirement.

So what can you do to help reduce the effects of inflation? Here are our six top tips:

Tip #1: Consider an inflation linked Annuity

Despite the changes announced in the Budget earlier this year, an Annuity is still the only way of turning your pension pot into a guaranteed income and will therefore remain a popular option for many pensioners.

Annuities can be arranged on a level or index-linked basis; unsurprisingly, one will never rise, whilst the other will increase each year. But there is a price to pay; the starting level of an index-linked Annuity is significantly lower than a level Annuity.

What’s more it can take over 20 years for the index-linked Annuity to breakeven.

Most people therefore go for a level Annuity, but if you’re healthy, a relatively young pensioner, or your spouse is significantly younger, you should at least consider the option of an index-linked Annuity.

Tip #2: Stocks and shares

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As an alternative option to a Lifetime Annuity, you could consider leaving part or all of your pension pot invested in stocks and shares.

There are two main ways of doing this:

  • Income Drawdown
  • Investment linked Annuity

Under both options you could experience reductions to your income and in the case of Income Drawdown you could see the value of your capital fall. But if you are prepared to accept the risks these can be valuable options in combating inflation.

Andrew Tully, Pensions Technical Director at MGM Advantage commented: “To maintain equity exposure in retirement while generating an income usually means using Income Drawdown. But, the risks associated with Drawdown mean it is not for everyone, so we should exercise caution shoehorning everyone into that type of plan. For Drawdown to provide sustainable income through retirement requires a high degree of exposure to equities, and therefore more risk.”

“Clients want protection against the risks associated with outliving their savings while managing the effects of inflation. This is where products like investment-linked annuities can help, allowing people to remain invested in equities so that there is potential to deliver more income over retirement than Drawdown, while reducing the risk of depleting funds.” (Source: MGM Advantage)

Tip #3: State Pension protection

Although the exact mechanism has changed over the years, it’s worth remembering that the State Pension rises each year.

Currently we have the ‘triple-lock’, which means it rises by the greater of earnings, the Retail Prices Index or 2.5%.

For most people the State Pension makes up a significant proportion of their retirement income, the fact it is index-linked will therefore help to offset some, although not all, of the effects of inflation.

Tip #4: Work your savings hard

Although inflation is relatively low at present, so are interest rates, which makes it harder to get an after tax-return to maintain the real value of your savings.

You need to be on the ball, looking for the best savings interest rates, use fixed rates to get a higher return, possibly even think about accounts which offer introductory bonuses so your savings can stay one step ahead of the ever hungry inflation animal.

We like to do our but to help, our Savings Watch feature shows you which accounts beat inflation; it’s updated regularly so check back often.

Click here to visit Savings Watch now.

Tip #5: Use your Cash ISA allowance

You can now shelter up to £15,000 each year from the taxman in a Cash ISA (Individual Savings Account).

By using a Cash ISA you will effectively increase the return you get by 20%, 40% or even 45%, making it easier to beat inflation.

Make sure you use the allowance each and every year. Don’t forget too that you can transfer ISAs from previous years if the interest rate you are currently getting is poor.

Tip #6: Consider investing rather than saving

Savers use deposit accounts, which mean they know their capital is secure, but often find it hard to beat inflation.

Investors put capital into other types of assets, such as stocks and shares, in the hope that they will provide a better return than both cash and inflation. Of course investing comes with a greater risk that the value of your capital will fall.

If you are prepared to accept some risk with your capital, then you should at least consider the benefits of investing at least a portion of your capital.

We’re here to help

If you are approaching retirement and would like to discuss ways of combating the effects of inflation our team are here to help.

All of our advisers are independent, highly qualified and extremely experienced. Initial conversations and meetings are free and without obligation, so get in touch today on 0115 933 8433 or email