Inflation rising to 1.8 per cent has sent nervous ripples among savers and some economists.
Nick Dixon, investment director at Aegon, said: "With inflation at a two year peak – and likely to exceed the Bank of England's 2 per cent target in coming months - monetary policy is likely to tighten during 2017."
He said rising inflation and interest rates were a "double-edged sword for pension income".
On the one hand, he said annuity rates would increase while, on the other, inflation erodes spending power over time.
Mr Dixon added: "It is imperative that advisers minimise their clients’ exposure to return-free government bonds where the ‘low risk’ tag applies only to the near certainty of real capital erosion.
"Instead, use of low volatility equity dividends as a core component of income planning may maintain spending power through the inflation cycle. Furthermore if natural yield forms the bulk of income, capital volatility is less relevant in the investor’s mix of relevant risks."
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