UK inflation continues to rocket in 2022, hitting 7% in March and putting pressure on millions of household budgets.
Savers feeling the pain during the cost-of-living crisis will inevitably be tempted to reduce or cancel pension contributions – but this could cause severe damage to retirement plans.
A 30-year-old earning £30,000 a year could end up with £37,000 less at state pension age (68) if they delay pension saving for 3 years, analysis shows.
For those approaching retirement, the impact of inflation will depend in part on how you plan to access your pension.
Annuity savers will likely derisk as they approach retirement – potentially leaving their fund exposed to rising prices.
Tom Selby, head of retirement policy at AJ Bell, comments: “Whether you’re saving for the future, approaching retirement or already taking an income from your pension, the impact of the cost-of-living crisis is likely to be felt in various ways.
“The extent of this impact will depend on a range of factors including your income, spending patterns and how long spiralling prices persist.
“A short, sharp bout of inflation would be extremely painful for many, but the real fear is that the cost-of-living will keep rising over a prolonged period.
“People in different stages of their retirement savings journey will also face different challenges in this environment, from maintaining a long-term savings plan when you’re younger to making a pension income stretch further.
“Whatever your circumstances, it’s worth checking your financial position in light of this new reality, cutting back spending where possible and, crucially, setting a clear budget based on your spending and saving priorities.”