Protect your lifestyle in retirement against rising costs
Escalating annuities protect your lifestyle in retirement against rising costs, research from the Saga Annuity Service reveals. A person who took an escalating annuity out in 1995 would now receive on average £614 more a year compared to someone who had opted for a fixed version. With the cost of many everyday items rising drastically in the past 15 years, the extra income would make a substantial difference in maintaining lifestyle and spending habits. Despite this only 5% of those buying an annuity take one which provides an increased income over time to account for inflation.
Costs have risen sharply for many every day food items over the years. Milk prices have increased by 146% as a pint in 1995 cost just 24p compared to 59p today. Astonishingly, bread, another staple daily item, now costs £1.37 on average, compared to 50p in 1995, an increase of 139%. As eating out has increased in popularity, many are spending more money than ever before on food. Whilst an escalating annuity provides a lower income initially, the extra income generated over time could be pivotal in helping those in retirement to enjoy life without worrying so much about the increasing cost of living.
Another item which has seen a significant increase in price is petrol. In 1995 a litre was 53.50p while now it is as high as £1.21 in parts of the country, an increase of 126%. The increased price of petrol is particularly significant for the older generation, as many rely on their cars as their only method of transport and the lifeline for their social life. Having to limit petrol spending can have a negative effect on how easy it is for them to lead an independent life as well as limiting access to friends and family. Cigarettes, a guilty pleasure for some over 50s, have also seen their prices increase dramatically, with an average packet of 20 costing £6.28 compared to £2.70 in 1995.
Inflation has a huge impact on purchasing power, and worryingly Saga's analysis of inflation data shows that someone relying on a fixed annuity would only have two thirds of the purchasing power in 2010 compared to what they had when they took out their annuity in 1995. Taking into account 3% inflation, purchasing power would have fallen from £3,106 in 1995 to £2,028 today. With everyday costs escalating, this means many pensioners would struggle with basic bills. Disturbingly, those who are still in retirement in 2017 would have seen their purchasing power decrease by half to £1,589.
Andrew Goodsell, Executive Chairman, Saga Group, comments: "Maintaining the buying power of pension income in retirement is incredibly important in helping people enjoy their lives. Escalating annuities offer peace of mind by providing a buffer against increasing inflation and retail prices, allowing people to lead more comfortable lifestyles in retirement. "
The Saga Annuity Service was launched in October 2009 and aims to offer best buy rates and an increased pension income for people with average sized pension pots - around £30,000. The range incorporates a Standard Annuity, an Annuity Plus product, providing increased income for those with certain medical/lifestyle conditions and an Enhanced Annuity for people with more serious health complaints.