What is inflation and what does it mean for your pension?

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What inflation means for your pension: Everything you need to know

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nflation is currently on the rise, and is at 9.1% in the 12 months since April, making it the highest for 40 years since 1982.

This growth is in line with analysts’ expectations. Grant Fitzner, chief economist at The Office for National Statistics, said: “Although still at historically high levels, there was little change in the annual inflation rate in May.

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“The persistently sharp food price increase and record high petrol prices from this time compared to last year were offset by an increase in clothing prices and often fluctuating computer game prices.

“The price of goods leaving the factory grew at the fastest rate in 45 years, driven by broader food price increases, while raw material costs rose at the fastest rate on record.”

The consumer price index is the main measure, and it is expected to reach 10% by autumn, meaning many consumers are feeling the pain of the high cost of living.

Wage increases are a driver of inflation, and those who are not in the jobs market may find that their higher cost of living is already affecting their more fixed income.

Here’s how inflation affects different types of pension payments.

What does inflation mean for my pension?

Inflation rate 9.1%

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Inflation rate 9.1%

, Press Association Images

Inflation destroys the value of money, which can affect your purchasing power later in life.

One way to potentially mitigate the effects of inflation is to invest your money in pensions.

What is inflation?

Britons are set to see their annual grocery bills rise by £380 this year, according to new data (Aaron Chown/PA), as food price inflation hits a 13-year high.

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Britons are set to see their annual grocery bills rise by £380 this year, according to new data (Aaron Chown/PA), as food price inflation hits a 13-year high.

, PA Wire

Inflation is the rate at which the cost of everyday things like food, transportation, and electricity increases over time.

For example, if you take a loaf of bread, if it cost £1 a year ago, and today it costs £1.02, the inflation rate is 2 percent. If it cost £1 a year ago, and it costs £1.05 today, the rate of inflation is 5 percent.

In the real world, the rate of inflation is constantly changing, and when inflation causes the price of goods to rise, they can also fall.

Inflation occurs when there is more demand for products, or the product or service becomes more expensive to produce.

And if too many products and services increase at the same time, the cost of living goes up as a result.

Final Pay Plans

A company’s final pay plan provides a set pension income based on your years of service and your salary at retirement.

If this is your plan, you can enjoy protection by way of guaranteed annual income.

Meanwhile, public sector pensioners will see their increase from the absolute CPI percentage.

Private category pensioners in the final pay plan will benefit from the CPI increase either in the range of 5 per cent, which means their income will more keenly feel the effects of inflation.

state pension

If you’re on a state pension plan, you can expect your income to rise each April from the high of the CPI inflation measure from the previous September, with the national average income rising by 2.5 percent.

The basic state pension which is paid to those who reach pension age before 6 April increased by £4.25 per week.

Meanwhile, flat-rate pensions that are also paid to those in the state pension age from 6 April 2016, increased by £5.55 a week.

This is an increase of £179.60 to £185.15 per week.

Self Enrollment Schemes

For those on auto-enrollment plans, you’ll pay a minimum of 8% of eligible income.

This is where employers pay 3%, and employees pay 1% from the 5% tax relief.

Paying more does not guarantee that the pension will beat inflation.

Credit: www.standard.co.uk /

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