Inflation Hits Pensioners

Inflation Hits Pensioners

According to a report from MetLife Europe Ltd, increased longevity and long-term economic challenges could cut retirees’ spending power by as much as 40 per cent over the next 25 years.  The report estimates that just 3 per cent annual inflation would reduce purchasing power by 40 per cent and should it reach 5 per cent per annum of the same period, then purchasing power could be cut by as much as 70 per cent.

The report highlights areas which are likely to require greater focus over the coming years, including offering guarantees on products to a certain extent, providing flexibility in retirement, allowing longer-term investment, access to a wide range of assets and more individual plans.  

Our view

Difficult subject.  Government and Pension companies do not need to be innovative.  What we see with the current retirement option of annuity purchase is that inflation linked pensions start at a much lower level and can take nearly 20 years to catch up with a level annuity that starts at a much higher level and gradually loses spending power.

Most pensioners want their money today.  It is no value if they die.

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