7.5m over-55s worry about rising prices

• People aged 55-64 are now less confident about retirement than they were a year ago
• Over-55s are the group most likely to be worried about rising prices

Research from pensions and retirement specialist LV= highlights how Britons approaching retirement are increasingly worried about rising prices.

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

• 17.6m (33%) of UK adults are worried about rising prices of everyday items – up from 27% in  September 2021
• People aged over 55 (36% 7.5m) are most likely (of all age groups) to say they are worried about the rising prices of day to day items 
• Women (40% 10.8m) are more anxious about rising prices than men (26%)

Retirement confidence is falling for over 55s

The LV= Wealth and Wellbeing Monitor also found that the proportion of people aged over 55 who are confident about retirement has fallen in the last year.

• In December 2021 41% of people aged 55-64 (who weren’t yet retired) said they were confident that they have saved enough for a comfortable retirement, compared to 44% in December 2020
• 55% of over-65s (who weren’t yet retired) are confident they have saved enough for retirement compared to 60% in December 2020
• Women (35%) are much less likely than men (52%) to be confident about their retirement prospects
• However, mass affluent people – those with assets of between £100,000 and £500,000 excluding property – are much more likely to be confident about retirement. Some 71% of mass affluent consumers are confident that they have saved enough for a comfortable retirement compared to 43% of the population as a whole
• The proportion of mass affluent consumers that are confident about retirement has also increased, from 60% in December 2020 to 71%. Previous research from the LV= Wealth and Wellbeing monitor found that a large proportion (84%) of this group saved money during the Covid pandemic and one in five (1.4m) mass affluent said their household saved over £10,000. This group are more likely to have put these savings into a pension (8% vs 5% UK adults). 

The LV= investment team expect inflation to peak by Q2 2022 and gradually return to more normal levels by the middle of 2023. The Bank of England base rate is likely to reach 0.75% later in 2022.

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

“The LV= Wealth and Wellbeing Monitor provides an interesting insight in the hopes, fears and aspirations of people approaching and in retirement.

“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.  

“One likely reason why over 55s are more worried about inflation is that they typically have a larger proportion of their savings in deposit accounts that are not keeping pace with rising prices. Wealthier households are probably more confident because they tend to have a great proportion of their investments in real assets such as equities and property, which have risen in value over the past few years.

“Rising inflation poses a dilemma for cautious investors. They are generally uncomfortable with the volatility that investing in stock market-based funds can bring but are also concerned that their savings fail to keep pace with rising prices. One option for them is a smoothed fund that invests in a wide range of assets but which helps to smooth out the ups and downs of the stock market.

“People in this position should consult a financial adviser, and this is especially true for people who plan to retire within the next five years.  A qualified financial adviser will be able to help clients choose the most suitable investments and create cashflow models to ensure and their retirement income is secure.”

Drawdown considerations

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 was withdrawn, or 15 years £18,000 a year is withdrawn. (Figures assume 4% growth rate)  

The following table shows the impact of income withdrawal on a pension fund and illustrates how long the pension fund will last, assuming different annual growth rates. 

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 December 2021.