Savers warned on impact of inflation on retirement savings

Savers warned on impact of inflation on retirement savings

Savers today will need to put more than three times as much money aside to achieve the same levels of spending power that their counterparts had in 1983, according to research from Prudential.

One pound in 1983 is worth £3.10 in today’s value, which should act as a warning to savers that they will have to save significantly more money to counter the erosion that inflation has on the value of their money.

The consumer prices index showed that inflation in the UK leapt to 2.3 per cent last month on the back of rising fuel and food prices, a problem that has been compounded by the weak value of sterling since the UK voted to leave the European Union.

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Vince Smith-Hughes, retirement expert at Prudential, said that putting more money aside while still in work is an effective way to offset rising inflation and ensure a higher standard of living in retirement.

“While saving as much as possible from as early as possible is the best way to build up a decent pension pot, spare money often feels hard to come by. However, making small changes to our lifestyles can help us when it comes to saving,” Mr Smith-Hughes said.

Alistair Cunningham, financial planning director at Wingate Financial Planning, said that he did not think the comparison of sterling’s value in 1983 versus today was helpful as there are many other factors at play when saving for retirement.

People are living longer and should consider what investments they can make to make their money work harder for them in the accumulation stage.

“We invest in very diversified portfolios holding a wide range of assets, but there is no escaping the fact inflation is a very significant risk,” Mr Cunningham said.