Spring is in the air and many of us are looking forward to longer days. But, as the winter chill lifts, many pensioners will be feeling the squeeze from the rising costs of living.
Inflation is already at the highest level since 1992, having reached 5.5% last month, thanks to the fallout from Covid-19. The Bank of England (BoE) have forecast that inflation could reach more than 7% in April.
This means that the increase to the State Pension, also due in April, is unlikely to keep pace with inflation.
To make matters worse, the current price cap on variable energy is due to end in April.
Experts were warning us about rising energy prices even before Russia invaded Ukraine, so we should all expect energy costs to jump dramatically in April too.
Read on to find out what you can expect from the State Pension and get seven practical tips for how you can protect your wealth and income if the cost of living is starting to pinch.
The triple lock suspension
The triple lock applies to the State Pension and was put in place to ensure pension payments keep pace with living costs.
Usually, the triple lock would help ensure that the State Pension would rise in line with the highest of these three measurements:
- 2.5%
- Average earnings growth year-on-year for the May to July period
- Inflation (using the Consumer Price Index measure) in the year to September.
This year, because the pandemic caused an artificial boost in wages, the triple lock could have prompted an 8% rise in the State Pension in 2022. So, in September 2021, the government suspended the triple lock and announced that the State Pension would increase by just 3.1% in April 2022.
This means that in April 2022:
- Basic State Pension will increase from £137.60 to £141.85 a week
- Full State Pension will increase from £179.60 to £185.15 a week.
In normal times, these pension increases wouldn’t seem too bad, but with the spiralling costs of inflation, for many pensioners, life could get difficult.
7 practical ways pensioners can beat inflation
If you’re nearing retirement or you rely on the State Pension for your income, there are a few things you can consider to help improve your financial situation.
1. Protect your savings
In times of high inflation, your cash will lose value in real-terms since interest rates cannot compete with the rising costs of living. Although it’s sensible to keep an emergency fund in an easy access account, you might want to consider investing any additional cash in stocks and shares.
Ideally, your emergency fund should have enough cash to cover between three and six months of your normal expenditure.
Wise investing can give your money the opportunity to beat inflation and grow in value. While investing in the stock market comes with some risk, history shows that, over the long term, equity investments tend to outperform cash and produce an above-inflation return.
To illustrate the power of investing in the stock market, the chart below illustrates how £100 invested in cash compared to the FTSE All-Share index.
Source: Refinitiv Datastream (total return assumes that all earnings and dividends are reinvested)
2. Find a “safe haven” for your cash
Some people turn to safe havens to protect their money in times of inflation.
Safe havens are assets you would expect to remain popular over the decades because supply is limited. For example, you might consider things like classic cars, works of art or commodities such as gold.
While gold can prove to be a useful safe haven, there are downsides. For example, the price of gold can stay virtually static for long periods of time – sometimes decades – without generating any returns.
Although safe havens, like gold, can serve a useful purpose for some investors, your money can probably work harder invested elsewhere.
3. Review your budget
If you haven’t taken the time to review your incomings and outgoings recently, now is a good time to revisit your household budget. Make sure you know exactly where your money is going every month.
In doing this, you may find that you can trim some costs. Perhaps you’re still paying for things you no longer need? So, study your bank and credit card statements with care and be ruthless in reviewing your bills and direct debits.
This is the perfect time for a financial declutter, so cancel anything that no longer provides true value.
4. Shop around for better deals
Spend some time making sure you’re getting the best deal. You may find that you can make substantial savings by swapping your phone company or reviewing your home or car insurance.
5. Find out whether you’re eligible for pension credit
If things are tight, check if you’re eligible for pension credit. You can claim pension credit even if you have other income, savings or own your home.
6. Consolidate any credit card debts
If you have credit card debt that you’re struggling to repay, it might be a good time to consolidate it. Shop around to see if there’s a suitable 0% credit card transfer deal that allows you to transfer all your debt to one new card and save on interest payments for a period.
Sometimes you can find deals that mean you pay 0% interest for up to two years or more.
If you decide to consolidate, make sure you do the sums to ensure you’ll actually end up paying less once you’ve taken into account all the applicable fees and charges.
7. Talk to a financial planner
For the best chance of protecting your wealth and finances against inflation, talk to a financial planner. They will have a deep understanding of the problems you face and the different ways that might be appropriate for you to help mitigate the issues.
Get in touch
If you’re concerned about rising costs and the effects of inflation and want help to protect your income and wealth, get in touch. Email enquiries@bowmorefp.com or call us on 01275 462 469.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
Bowmore Financial Planning Ltd is authorised and regulated by the FCA.
