It was announced in November that the state pension was to increase by 3.1 per cent, which was set using September’s CPI.
However, with inflation running at 5.5 per cent in the 12 months to January that means that pensioners will currently see a real term loss of 2.4 per cent in the amount of income they will receive from the government, and it could get worse as the BoE expects CPI inflation to peak around 7.25 per cent in April.
The increase in state pension in 2023 will be based on CPI in September 2022 which will take account of inflation at that point. Therefore in 2023, the state pension increase could be higher than inflation for that year.
But pensioners - many of whom have high cash savings being eroded by inflation - are likely to be worst-hit when it comes to the cost of the average basket of goods and services bought by older consumers.
They will also suffer most from higher utility bills and the new new national insurance tax. Therefore, specialists have warned advisers with older clients to take action to review their savings plans - and fast.
Andrew Tully, technical director at Canada Life, said: "Many people rely on fixed incomes including retirees who typically live off pension income and can be disproportionately affected.
"Building some form of protection against the ravages of inflation can help people maintain living standards by combining drawdown and annuities as part of a retirement plan."