In Focus: Retirement Income  

Why inflation should matter to your pension clients

Why inflation should matter to your pension clients
Photo by Sirirak Boonruangjak from Pexels

Inflation could pose a serious risk if the upward trend continues, economic analysts have warned.

Christopher Snowdon, Head of Lifestyle Economics at free market think tank the Institute of Economic Affairs, said although the overall rate is still low, at 1.5 per cent, the "sharp rise" seen within the space of a month was "concerning, and unlikely to be a one-off".

He said: "As the economy opens up we will see a classic case of too much money chasing too few goods. 

"There has been rampant money printing at home and abroad. That money has been sitting in people’s bank accounts and can now finally be spent. Supply has been restricted by furlough, social distancing and other Covid policies. 

"We have all the ingredients for a bout of inflation. The only question is whether it will be short and sharp or if it will become a chronic problem leading to higher interest rates and a downward spiral.”

Similarly, Rachel Springall, finance expert at, warned against holding significant sums of money in cash accounts where inflation will simply erode the spending power of the pounds.

She said: “The current level of inflation will make a clear impact on savers, as unless they have their cash already stashed away in a fixed rate account that can beat it, the spending power of their cash has been eroded in real terms.

"The predicted rate for inflation in Q2 2022 is expected to rise to 2.3 per cent, and today the top five-year fixed rate bond pays just 1.40 per cent. For those using an easy access account the top rate is 0.50 per cent, while for Isas the top rates are 1.10 per cent and 0.45 per cent respectively."

Their comments came in response to the inflation figures from the Office for National Statistics in May, which showed a rise of 0.8 per cent in the consumer prices index from March to April this year, reaching 1.5 per cent.

There are predictions inflation for quarter two this year could reach 2.3 per cent, exceeding the Bank of England's 2 per cent target.

Due to that rise, there are currently no accounts that beat the current rate of inflation, despite some improvement to fixed bonds since the last inflation announcement, according to analysis from

Moneyfacts' data revealed:

  • The number of deals able to outpace inflation has fallen since last month’s announcement, due to a rise in inflation of 0.8%, from 90 in total that beat 0.7%, to none today that beat 1.5%.
  • The predicted rate for inflation during Q2 2022 is 2.3%, but there are no standard savings accounts currently able to beat this.
  • In May 2020, 376 deals (24 easy access, 49 notice accounts, 24 variable rate Isas, 70 fixed rate Isas and 209 fixed rate bonds) could beat 0.8% (April CPI).

But the worries about inflation and the potential for eroding savings in accounts where the interest or growth does not beat the rate of inflation are not confined to the UK.

The US is also presenting some concern, according to Mark Harries, chief investment officer at Square Mile Investment Consulting and Research.

He said the US 2.6 per cent inflation rate over the 12 months to March 2021 breached the Federal Reserve's 2 per cent target and raised fears the Fed might "increase rates to cool things down".