While retirees have enjoyed a comparatively easy ride through the financial turmoil of the last few years, 2017 could be the year all that comes to an end.
In the recent Autumn Statement, Chancellor Philip Hammond pledged to keep the ‘triple lock’ on state pensions for the rest of this parliament, guaranteeing that they will rise each year either with inflation, in line with wage rises, or by 2.5%, whichever is higher.
However, he made it very clear that this deal certainly couldn’t be guaranteed if the Conservatives won another term in power. And, meanwhile, pensioners are facing more financial pressure than they have done for years.
Pensions set to be a quarter of what current pensioners get
In a new survey for insurance firm Aviva, it’s revealed that almost one in four people over the age of 55 say the drop in value of their savings following the Brexit vote is a threat to their financial security.
Price hikes of up to 50% in the wake of Brexit vote
Meanwhile, the rising cost of living, again fuelled by the prospect of Brexit, means that retirees’ income is stretched much further. The latest government Consumer Price Index data shows inflation reached a two-year high of 1.2% in November, with the Office for Budget Responsibility predicting it will continue rising to hit 2.6% – a level not seen since September 2013.
As a result, even if interest rates do rise next year, retirees are unlikely to see any benefit. Bank of England data shows that average interest rates on a variable cash ISA have fallen from 2.5% in 2012 to just 0.7% in 2016 – and have been lower than inflation since September, for the first time since October 2014.
Although the over-55s had an average of £1,360 less in savings in 2012 than they do now – £17,750 compared with £19,110 – they’d have received £444 in annual interest from the average cash ISA in 2012, compared to just £140 today.
“2016 has been a year of seismic change and it is still unclear what the long-term impact of the UK’s decision to vote to leave the EU will be,” says Rodney Prezeau, managing director, consumer platform, of Aviva UK Life.
“What is clear is that those approaching retirement have heightened concerns for the future following the decision to cut interest rates in the summer and through a growing consensus that inflationary pressures may start to kick in next year.”
Some pensioners are attempting to counter their losses by working – but this isn’t an option for all. Others, more worryingly, have been racking up unsecured debt.
Warns Prezeau: “As we approach the start of a new year, it is important that people take time to seriously assess what wider macroeconomic changes could mean for them individually as they plan for the future, in order to ensure they start 2017 in the best possible position.”