I have long thought that inflation is the most neglected of the risks to which savers are exposed, particularly in the field of personal pensions, where horizons are long.
Yet Gill Cardy (FA, 9 October) refers to annuities as allowing “for the complete transfer of risk from the client to the annuity provider”. Similar views are often voiced, but, apart from index-linked annuities, which are poor value because of the shortage and high price of the index-linked securities needed to back them, all annuities leave some exposure to inflation risk.
Our industry needs to learn to weigh this alongside the other risks markets present – and to help customers to understand the trade-offs. The terror which seems to surround volatility these days (with scant acknowledgement that volatility in an upwards direction is a wonderful thing) needs to be tempered with a recognition that an equity portfolio has a strong chance of neutralising the impact of inflation over the timescale appropriate for most pensioners.
It is not easy to handle setting off risks against each other rather than simply aggregating them but the time may not be far away when solid protection against inflation is once more the single most important determinant of pensioners’ financial well-being.
Roger Morton (retired), Matlock, Derbyshire
