5m adults say their living costs have risen by at least £500 a month

  • Average living costs for consumers have risen by about £2,600 a year and one in 10 of those with extra living costs say they are struggling to pay for food and heating
  • Inflation is eroding their savings but only a third of consumers are considering moving money into higher-risk investments 

Research from pensions and retirement specialist LV= highlights how rising inflation is affecting UK consumers. 

The LV= Wealth and Wellbeing Monitor* - a quarterly survey of 4,000+ UK adults – reveals:

  • 25% (13m) of UK adults say their monthly living costs are £250 higher than a year ago and 9% (5m) say their monthly costs have risen by £500 or more
  • Retired people have seen their living costs rise on average by £163 a month- nearly £2,000 a year
  • 13% (6m) of those with extra living costs say they are struggling to pay for heating and 10% (4m) are struggling to pay for food

How people are coping with rising living costs

People with rising living costs say they are adopting a variety of ways to make ends meet

  • 36% (16m) are saving less
  • 34% (15m) are buying cheaper brands
  • 30% (14m) are having fewer holidays and meals out
  • 23% (11m) are dipping into savings
  • 19% (9m) have cancelled some subscriptions
  • 8% (4m) are taking on more credit card debt and loans
  • 5% (2m) have asked friends and family for help
  • 5% (2m) are paying less into their pension 
  • 5% (2m) have cancelled some insurance policies

What people are doing with their savings

Inflation is eroding the value of consumers’ savings but many are worried about moving their savings into higher-risk investments

  • 31% (16m) are considering moving (or already have moved) money into a higher-risk investment to achieve more long-term growth
  • But 63% (33m) would avoid moving money into higher-risk investments because they are worried about volatility

For many people inflation is an unseen danger to their finances

LV=’s research indicates that a significant minority of people are unaware how inflation affects their savings;

  • One in four adults (25%/ 13m) are unaware that inflation can reduce the value of savings (if inflation is great than the interest rate on their savings)
  • Younger people are less likely to understand the impact of inflation on savings. Some 34% of 18-34 year olds don’t understand the impact of inflation on savings compared to 14% of over-65s 

How inflation can damage retirement savings

Increased cost of living may cause those in retirement to withdraw more of their pension savings each year than originally planned.  Savers who draw down a larger income from their pension run the risk of exhausting their pension fund, depending on their pension’s growth rate. The table below shows how a £200,000 pension fund could last 28 years if £12,000 a year is withdrawn, or 15 years £18,000 a year is withdrawn. (Figures assume 4% growth rate)  

 
How long will a £200,000 pension fund last?
 Annual income  £9,000  £12,000  £15,000  £18,000  £21,000
 Annual growth rate Number of years before pension runs out
 1%  26  19  15  12  11
 4%  53  18  19  15  12
 7%  -  -  35  21  16

 

Clive Bolton, Managing Director of Savings and Retirement at LV=, said:

“The LV= Wealth and Wellbeing Monitor provides highlights how rising prices are squeezing the incomes of millions of people. 

“Inflation fears have been rising since summer and rising prices pose a problem for retired people. Those on fixed incomes will see the purchasing power of their incomes fall. Those drawing an income from their pension fund may be forced to withdraw more money from their pension fund than they anticipated and increase the risk of running out of funds in retirement.  

“Rising fuel bills mean many are making cutbacks to other areas of expenditure while many are dipping into savings, taking on extra debt or borrowing from family to make ends meet. 

“One of the big issues people now face is how to also protect the future spending power of their savings being eroded by rising prices. This is especially true if they keep their money in savings accounts and are reluctant to invest in what have typically higher returning stock-market investments because they fear volatility. 

“One solution could be smoothed investment funds that are designed to reduce the volatility of investment markets and produce real returns that over the long-term.  The best option is to consult a financial adviser who will be able to identify the most suitable funds.”

 

Notes

* The LV= Wealth and Wellbeing Monitor is a quarterly survey of 4,000+ consumers which examines their attitudes to spending, saving and retirement. LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in March 2022. 

For further information please contact:

David Gwyer
Media Relations Manager – Life and Pensions
07798 796907
Candice South
Press Officer, Life & Pensions
07867 141547

About LV=

LV= is a leading financial mutual and serves over 1.3 million members with a range of financial products. When we started in 1843 our goal was to give financial security to more than just a privileged few and for many decades we were most commonly associated with providing a method of saving to people of modest means. Today we follow a similar purpose, helping people to protect and provide for the things they love, although on a much larger scale and through a wide range of financial services including insurance, investment and retirement products. We offer our services direct to consumers, as well as through IFAs. 

LV= and Liverpool Victoria are registered trademarks of Liverpool Victoria Financial Services Limited and LV= and LV= Liverpool Victoria are trading styles of the Liverpool Victoria group of companies. Liverpool Victoria Financial Services Limited, registered in England with registration number 12383237 is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number 110035. Registered address: County Gates, Bournemouth, BH1 2NF.