Soon we’ll not be supporting this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

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.

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

UNDERSTAND YOUR RETIREMENT OPTIONS – YOUR GUIDE

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.

Editor’s choice: our weekly email

Sign up to receive the week’s top investment stories from Hargreaves Lansdown

Please correct the following errors before you continue:

    Existing client? Please log in to your account to automatically fill in the details below.

    Loading

    Your postcode ends:

    Not your postcode? Enter your full address.

    Loading

    Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.

    What did you think of this article?

    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.

    Editor's choice – our weekly email

    Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

    • Latest comment on economies and markets
    • Expert investment research
    • Financial planning tips
    Sign up

    Related articles

    Category: Shares

    Investing in commodity ETFs – what investors need to know

    For years, commodities have offered an alternative investment opportunity to shares and bonds. But what are they and how can you invest in them? We take a closer look.

    Alexander Watkins

    02 Aug 2021 5 min read

    Category: Shares

    Shares aren’t a one trick pony

    Not all stocks are created equal. Here’s a look at how some shares might be more diverse than you think.

    Sophie Lund-Yates, Equity Analyst

    30 Jul 2021 7 min read

    Category: Shares

    4 simple steps for researching shares

    Lots of investors find researching shares a bit daunting, but if you’ve decided to consider investing in them, you have to start somewhere.

    William Miles, Junior Equity Analyst

    30 Jul 2021 5 min read

    Category: Investing and saving

    Self-employed payments on account deadline – 2 tips to avoid overpaying

    The ‘payments on account’ deadline is 31 July. We share strategies to help you save tax with HMRC.

    Isabel McDougall, Pensions and Retirement Writer

    27 Jul 2021 3 min read