UK Consumer prices are rising this year – this has been well reported across almost all media outlets. What may be more insightful, is that while UK inflation, a key factor in consumer prices, is predicted to peak in Spring of 2022 at around 7% or 8%, its likely to start to fall back as the year progresses. Current forecasts predict that the price of energy and imported goods are unlikely to rise as quickly, so is predicted to hold back any further dramatic increases in UK inflation, and therefore consumer prices, over the rest of the year.
So? I hear you ask. What does this have to do with my pensions? Well inflation can eat away at the value of your pension savings over time. Therefore, it’s really important to regularly review how much you are saving into your pension to make sure you’re on track to achieve your retirement goals.
If the consensus holds true, which considering what’s happening in the Ukraine seems likely, predictions are that household costs will continue to rise versus last year – and probably a lot more than it did 10 years ago. These rises can eat away at the value of your pension savings – meaning your money won’t go as far tomorrow as it does today.
Unfortunately, saving money in a bank account is unlikely to protect you against rising costs. This is largely due to the low levels of growth you can expect from current low-interest bank accounts.
Increasing your regular contributions
When it comes to increasing your payments, it’s in human nature to delay decision which don’t have an immediate benefit – such as moving to a better Pay TV or mobile phone contract. But what about those longer-term decisions – such as your pensions? We would recommend you consider these alongside some of the other decisions that you may be making because of the price increases that are currently being seen.
Small adjustments to your contributions or to your investments can have a considerable impact to outcomes when viewed over the next 10 or 20 years. For example, increasing your contributions every year in line with RPI is a great way to help protect the spending power of your money as the cost of goods and services rise.
If you’d like to talk through increasing your contributions and the difference our planning could make to your retirement goals, just get in touch.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of fund when accessed, interest rates and legislation. Taxation advice is not regulated by the Financial Conduct Authority. Pensions cannot be accessed until age 55 (age 57 from April 2028 for pensions taken out after 11 February 2021).
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