Planning for the Effect of Inflation on Pensions and Savings
Published / Last Updated on 17/11/2025
It’s all well and good if you are saving in pensions, ISA’s or investing in markets. It is a wise thing to save.
However, you need to know the impact of inflation on your savings and investments.
If inflation rises, then this can make any pension contributions you make worth less in the future. Our money has less spending power as the costs of goods and services rises over the years. You should consider increasing savings and investments
If you receive inflationary pay rises or ad hoc pay rises, you should also consider increasing contributions again in proportion to those rises, so that your pensions or savings as still the same proportion of your income.
Changes have been made a number of years ago by the regulator where pension projections include adjustments for inflation in quotations and illustrations, but you should always closely monitor this.
Remember, the Government and Bank of England need inflation as it helps to devalue public sector debt over a 10-25 year period, meaning when the time comes to pay back that debt, it has been devalued.
Last 10 Years Inflation:
|
UK Annual Inflation Rate (CPI) Effect 2016–2025 |
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|
Year |
Average Annual Inflation Rate |
Compounded Effect |
Buying Power of £100 (2015 compared) |
Target Monthly Pension based on £1,000 pm in 2015 |
Target Monthly Pension based on £2,000 pm in 2015 |
|
2016 |
0.70% |
0.70% |
£99.30 |
£1,007.00 |
£2,014.00 |
|
2017 |
2.70% |
3.42% |
£96.58 |
£1,034.19 |
£2,068.38 |
|
2018 |
2.30% |
5.80% |
£94.20 |
£1,057.98 |
£2,115.95 |
|
2019 |
1.70% |
7.60% |
£92.40 |
£1,075.96 |
£2,151.92 |
|
2020 |
1.00% |
8.67% |
£91.33 |
£1,086.72 |
£2,173.44 |
|
2021 |
2.50% |
11.39% |
£88.61 |
£1,113.89 |
£2,227.78 |
|
2022 |
9.10% |
21.53% |
£78.47 |
£1,215.25 |
£2,430.50 |
|
2023 |
7.30% |
30.40% |
£69.60 |
£1,303.97 |
£2,607.93 |
|
2024 |
2.50% |
33.66% |
£66.34 |
£1,336.56 |
£2,673.13 |
|
2025 (to Sep 2025) |
3.80% |
38.74% |
£61.26 |
£1,387.35 |
£2,774.71 |
|
Source: Office for National Statistics |
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Compounded CPI inflation over just the last 10 years stands at 38.74%. If you are still saving the same amount into your pension or your overall investment strategy has not produced compounded growth of 38.74% then you are losing money or devaluing the future spending power of your money.
Revise your targets and contributions every year. Use our Pensions Target and Pensions Shortfall calculators to help you work out where you are and if you are still on target.
Pension Target Pension Shortfall
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