Newcastle Building Society reveals bleak outlook for pensioners

New research from Newcastle Building Society Equity Release Service has unveiled the true high cost of being a pensioner. In 2008, Newcastle Equity Release Service predicts that real inflation for pensioners will be up to 7% - more than double the estimated national inflation rate.

The main areas responsible for this hike are fuel and food, which, according to the weightings of the Government’s pensioner’s price index, account for over one-third (14% and 22% respectively) of all pensioners’ expenditure.

However, fuel and food prices will increase significantly in 2008 – with fuel up by around 15% and food up by 12%. This means that, even if all other items paid for by pensioners retain the predicted inflation rate of 3%, based on food and fuel hikes alone pensioners will fare the worst of all consumers, facing 7% inflation overall.

Both EDF energy and npower have already announced fuel increases this year – EDF 13% for gas and 8% for electricity, npower 17% for gas and 13% for electricity. These rises have been blamed on the cost of fuel in the wholesale markets. British Gas has also followed suit this week with rises of around 15%.

Official figures released this month showed wholesale food prices rose by 7.4% in 2007 - more than three times the headline rate of inflation. The increase, the highest since the Office for National Statistics (ONS) began keeping records in 1992, has driven the cost of a consumer's average basket of groceries up by 12% in a year. This trend is predicted to continue into 2008.

Compounding the woes of pensioners is rising council tax bills. The average council tax bill is expected to increase by about 4% to £1,380 in April, making a total increase of more than 100% since Labour took office. Council tax and other housing costs are excluded from the Government’s pensioner’s price index.

Almost every year over the past five years, the pensioner’s price index has outstripped the retail price index (excluding housing), with pensioners facing higher than average inflation costs.

Recently it was announced that around 1.27 million pensioners are still working beyond the age they might traditionally have expected to be retired, as the rising costs of living in the UK prevents retirement.

Equity release is being seen as a viable option for meeting routine living costs in later years. In a recent survey by Newcastle Building Society, 59% of those surveyed said they would use the money to improve the quality of their everyday life.

Bob Mottershead, Retail Sales Executive, Newcastle Building Society, comments: “These findings paint a bleak picture for pensioners in 2008. The rising cost of living is undoubtedly a concern for us all, however, commonly it is those in later years who suffer the most. For the many relying on the basic state pension of just £87.30 per week, these increases could negatively impact everyday quality of life.

“There are many ways those approaching their golden years can fund their retirement, and equity release is one such option. Over the past year alone we have found this type of product is becoming increasingly popular as more asset-rich, cash-poor retirees struggle to make ends meet.”

The Retail Price Index (RPI) takes an average of the prices from a basket of typical goods including items such as flat panel TVs, recordable DVDs, satellite navigation and mobile phone downloads. The Pensioner’s Price Index excludes from the RPI data housing costs, workplace and school meals, child minding costs, eyesight tests, NHS prescription costs and dental charges, which are all free to the over 60’s. It also takes into account reduced rail and bus fares and the reduction in cost of TV licences. However, all other items remain the same, including technology and leisure activities which may not actually be representative for a typical pensioner’s expenditure.