Hartford Life: Baby boomers are not protecting their pensions against inflation

10 July 2007
60 per cent of people aged 45 and over are not taking action to counter the affects inflation will have on their retirement incomes, according to research by Hartford Life.

Research by Capital Economics shows that the cost of living for some pensioners rose by 7.7% in the 12 months ending in April 2007 compared to a Retail Price Index (RPI) of 4.5%, and although one in nine of the 1,089 people surveyed said they were aware of and worried about the affect of inflation on their pension, three in five are still not doing anything about it.

“Inflation is clearly a concern for UK consumers, but the lack of action is worrying, especially when we consider that recent studies show us that inflation is affecting retirees more than any other group,” said Michael Kalen, CEO for Hartford Life Limited.

“Boomers need to address this and start planning to protect their retirement incomes from the corrosive effect of inflation,” Kalen said. “They need to increase their retirement assets and the income they derive from those assets throughout retirement.”

Investing in equity markets is one way to keep pace with and even exceed inflation but it is a risk, and a recent Hartford survey showed that nearly one in two investors are unwilling to expose their retirement savings to the ups and downs of the financial markets, although 50% said that they would be willing to invest in equity if they could pay for a guarantee to lock in a minimum level of retirement income.

“People want their pension income to stay ahead of inflation but it’s also clear that they recognise the risks associated with equity investments,” Kalen said.

“The introduction of guaranteed drawdown pensions provides a solution to this consumer demand in the UK. These products offer the income certainty of annuities but with the potential for growth of a drawdown scheme.

“Therefore, guaranteed drawdown pensions allow people to remain invested in equities and thus benefit from their potential upside, while at the same time providing a guarantee that protects the value of their pension in bear markets.”

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