Pensioners and savers have been warned that very low inflation levels could hurt their finances, with specialists urging advisers to create an investment plan for their clients.
Spokesmen from LV and Scottish Friendly claimed pensioners and savers would face difficulties because of the extremely low inflation rate. In March the Official for National Statistics revealed that inflation had hit zero, down from 0.3 per cent in January.
Further, in its 58-page Inflation Report in February, the Bank of England predicted inflation would keep falling. The report said: “The fall in the oil price over recent months means that inflation is likely to fall further in the near term, and could temporarily turn negative.”
Steve Lewis, head of retirement distribution for LV, said: “The pensioner has to recognise that inflation is perhaps the biggest risk to his retirement income plans.
“Setting out for a lifetime in retirement based on an expectation that today’s environment will continue would just be wrong. Individuals and advisers need to understand and plan for inflation.”
Mr Lewis was not alone in his warning. Calum Bennie, a savings specialist for Scottish Friendly, said deflation could lead the Bank of England to cut interest rates from the low of 0.5 per cent – a move that would put pressure on cash savers.
He said: “The outlook for savers is not good, and those looking to build up deposits will have to scurry around to get decent rates on cash accounts. Alternatively, for a long-term investment, now could be the time for people to consider stocks and shares, or investment Isas.”
Chris Williams, chief executive of Bristol-based Wealth Horizon, said: “Having a diversified portfolio which can grow above a more normal level of inflation, such as the 2 per cent the Bank of England targets, should still be a key goal for investors, and is something which assets like cash cannot match with rates where they are.”