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How to shelter your retirement income from inflation

Inflation can reduce your buying power in retirement. We look at options you could consider to help shelter your income.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Inflation rose to 2.1% in May this year – the highest level since the start of the pandemic. As the rate of inflation picks up, those in retirement could be hit the hardest.

If prices go up but your income doesn’t, you won’t be able to buy as much. Thankfully, there are ways to help try and inflation proof your retirement income.

This article isn’t personal advice. If you’re unsure what’s right for your situation, ask for financial advice.

The impact of inflation over time

Your retirement could last 30 years or longer. If your income stays the same in that time, and inflation stays at 2% a year (the Bank of England target), this would almost halve what you could afford in 30 years’ time. Take a look at the table below.

Example of what £10,000 could be worth in the future

   Rate of inflation
2% 3% 4%
10 years £8,203 £7,441 £6,756
20 years £6,730 £5,537 £4,564
30 years £5,521 £4,120 £3,083

How to plan for inflation in your retirement

1. Check if you’ll get some automatic protection

Lots of people are entitled to the State Pension and it will form a vital part of their income in retirement. For most people, the income they get will be protected against inflation by the ‘triple lock rule’. This means your State Pension income will normally increase by the higher of inflation, earnings growth or 2.5%.

More on State Pension rules

If you have a defined benefit (DB) pension, like a final salary scheme, the income you’ll get will normally go up in line with inflation or by a fixed percentage. You can check if you have a DB pension by contacting your employer or pension provider.

2. Think about buying an annuity

If you have a personal pension (including self-invested personal pensions), you could consider swapping some or all of your pension for an annuity. This will provide a secure income for life, which you can also inflation-proof.

You can normally choose for your income to increase each year, either by a fixed percentage (normally 3% or 5%), or by linking it to the Retail Prices Index (RPI). Choosing these options mean your starting income will usually be lower, but better protected against inflation.

To find out how much annuity income you could get, you can use our online annuity tool to get a free quote. Don’t forget to confirm your health and lifestyle details, like your height, weight and how much alcohol you drink. It could mean you qualify for even more income which you can protect against inflation.

Get an annuity quote

Once set up, an annuity can’t usually be changed or cancelled. It’s important to make sure you understand your options, including how much income your spouse or partner would receive on your death, before you apply. Quotes are guaranteed for a limited time and annuity rates can change and could go up or down in future.

Get a quote

Win 1 of 5 £185 Fortnum & Mason hampers

Get an annuity quote to discover how much secure income you could get and we’ll enter you into our prize draw for a chance to win a Fortnum & Mason hamper. Offer ends 15 July. Entrants must be 55 or older. Terms apply.

More about getting an annuity and the prize draw

3. Cash vs investing

The value of cash can be eroded by inflation over time. Once you have enough emergency cash saved in an easily accessible account, choosing to invest, rather than holding lots of cash, can help inflation proof your retirement income. That’s because investing gives you a better chance of beating inflation over the long term. Remember though, unlike the security offered by cash, all investments, and the income they pay, can go up as well as down in value. You need to be happy with the risks involved, as you could get back less than you put in.

Should I save or invest?

Like lots of different types of pensions, a self-invested personal pension (like the HL SIPP) lets you pick your own investments, whether you're investing for growth or for an income. With the HL SIPP, you can move your money into drawdown or take lump sum withdrawals as and when you need to throughout your retirement.

Investment ideas for a SIPP


How can I get help with my retirement options?

What you do with your pension is an important decision. Make sure you understand all your options, and their risks. Check that the option you choose is right for your circumstances before you apply. Get guidance or ask for personal advice if you’re unsure. The government provides a free and impartial service to help you understand your retirement options – more on Pension Wise.

We offer a range of information and support to help you plan your own finances. We also have a team of Financial Advisers who can help you achieve your retirement goals, including providing help with investment choices. Our flexible approach means you only pay for the advice you need.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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