Prudential has revealed that pensioners retiring this year on a fixed income could lose 60 per cent of their spending power over the course of a 20 year retirement.
Analysis from Prudential shows that the average person retiring in 2011 expects an annual income of £16,600, but if that income remains fixed it will be worth a mere £6,700 in today's money in 20 years' time - effectively a £10,000 pay cut. In fact, assuming that inflation remains at its current level, pensioners will need their retirement income to more than double (to over £40,000), if they expect to maintain their standard of living for the next 20 years.
Pensioner inflation or 'Silver RPI' is higher because people of retirement age spend a greater proportion of their income on goods and services that are subject to the highest rates of inflation - such as food and fuel.
Vince Smith Hughes, Head of Business Development at Prudential, said: "Pensioners on a fixed income are particularly vulnerable when it comes to rising living costs and our figures demonstrate the true extent to which 'Silver RPI' impacts on the spending power of those in retirement.
"There are alternatives to a fixed income in retirement, for example choosing a flexible income plan that has the potential to grow could help many retirees to mitigate the effects of increasing living costs. We recommend that people approaching retirement seek professional financial advice to help them understand all the retirement income options open them."
Research by Age UK recently found that 'Silver RPI' has averaged 4.6 per cent a year since January 2008 - nearly 50 per cent more than the 3.1 per cent average annual inflation recorded by the Retail Prices Index (RPI) over the same period.
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Notes to Editors:
* Prudential's Class of 2011 retirement research, a survey conducted by Research Plus between 6 and 14 December 2010 using an online methodology among 10,143 UK non-retired adults aged 45+ including 1,005 planning to retire in 2011
** Pensioner inflation figures based on data from - 'Age UK Enterprises Silver RPI - Measuring the true impact of inflation on those in later life' – 11 May 2011
'Prudential' is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group, which between them provide a range of financial products including money advice, life assurance, advice on planning for retirement, which includes pensions and annuity service.
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