According to Hargreaves Lansdown
The old pound coins are being withdrawn on 15 October, after initially hitting our pockets in 1983.
In the intervening years, how far that pound stretches has dropped dramatically. Back then you could get a pint of beer and a loaf of bread for just a fraction over a pound. Now it would set you back more than £4.
It means it’s essential to take steps to protect yourself against inflation.
Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown
“You’d be forgiven for thinking that in the 34 years we’ve been carrying pound coins around, very little has changed. After all a pound is still a pound. However, when you look at what it will buy you, it reveals the striking impact of inflation.
Overall, today you would need £3 to buy what you could get for £1 back in 1983. Some prices have risen faster than others, so while the price of a pint of milk has more than doubled, the price of a loaf of bread has almost tripled and the price of a pint of beer has risen more than four-fold.
This has had a dramatic effect on your personal finances, and highlights why it’s vital to protect yourself from the effects of inflation.”
The inflation picture
Rising prices don’t cause a problem in themselves, as long as incomes keep pace. Unfortunately, at the moment, wages aren’t keeping their spending power, savings are losing money in real terms, and fixed pension incomes are falling further and further behind the cost of living. Budgets are being squeezed, so people are suspending savings, and borrowing to make ends meet. At the same time, the things they are saving for are getting more expensive, and moving further out of reach.
Seven ways to beat inflation
1. Keep your own costs down
Prices are creeping up, but if you shop around for everything from groceries to utilities and insurance, you can keep your own costs under control.
2. Track down competitive savings accounts
Savings accounts are not keeping pace with inflation at the moment, but that doesn’t mean you should leave cash languishing in an account offering no interest. The rates on savings accounts have been gradually increasing, so you can get up to 1.6% on an easy access account or up to 2.22 per cent at current rates if you tie the money up for two years.
3. Roll over NS&I inflation linked bonds
This is the one cash investment that’s guaranteed to keep pace with inflation. Unfortunately, it’s only available to existing holders of inflation-linked bonds, so if you have one that’s maturing, it’s worth rolling over.
4. Consider whether to move longer term savings into equities
If you have cash savings set aside for the long term, ask yourself whether a portion of it could be moved into share-based investments. These do involve risk, and can lose money over the short term, but over 5-10 years or more, the way money works means that shares are far more likely to rise in value faster than the rate of inflation, giving the potential to grow more than cash in a savings account.
5. Take advantage of tax shelters
Once you have worked so hard to get an inflation-beating return, don’t let the taxman take a slice. Consider ISAs and pensions – so you can keep more of your own money.
6. Make the most of index-linked pensions
The state pension is protected from inflation, through the triple lock. It means it’s worth checking to see what you currently qualify for, and whether there’s anything you can do to boost it. If you don’t have enough qualifying years of National Insurance contributions, for example, you may be able to top up.
If you have a defined benefit pension that you can make additional contributions to buy additional income, it’s almost always a good idea. These pensions don’t just offer an income for life, the income increases every year.
7. Ensure your other pension income rises
If they didn’t allow for inflation, someone who retired on the day the pound coin was introduced would now be living on a third of the income they started with. It’s important to factor the rising cost of living into your plans, whether that’s through index linked annuities, or remaining invested through income drawdown where your pension investment choices should mean your income rises over time.
