Pain for older savers continues as inflation holds

19 December 2012

Older people may be continuing to see their savings eroded after official figures revealed inflation held at the same level in November as in the previous month.

Data unveiled by the Office for National Statistics (ONS) showed inflation was at 2.7 per cent over the course of the month, the same as was recorded in October.

With the government's target for the headline rate of inflation set at two per cent, many people are seeing their financial circumstances get more difficult every month.

This is as the price of everyday items such as food and fuel continues to go up, while a lot of individuals are currently experience a salary freeze, which means they are effectively being paid less every year.

Pressures

It was revealed by the ONS that the largest upward pressures to annual inflation in November came from food and non-alcoholic beverages - mainly bread, cereals and vegetables - and housing and household services such as domestic gas and electricity.

Energy is a particularly important purchase for older people as they spend a greater proportion of their incoming money every month on gas and electricity for their homes.

Each of the UK's major six energy providers has announced in the last few weeks that they are putting their tariffs up, which is likely to force many older households into fuel poverty.

Downward pressures over the course of the month were shown to have come from motor fuels and furniture, as well as household equipment and maintenance.

Kevin Mountford, head of banking at MoneySupermarket.com, described the news that inflation held firm during November as a further blow to UK savers.

Reliance on savings

Many older people in the UK rely on their savings to get by each month and will be seeing the amount of money they have come down unless inflation drops.

Mr Mountford added it is "a bitter pill to swallow" for those who are planning to make savings goals a big part of their New Year resolutions for 2013, adding: "It is important savers don't give up or get put off, and prepare to switch if they are not currently on the most competitive deal.

"There is a significant difference between the average and top paying rates and moving to a better deal can go a long way to help savers limit the impact of inflation on their pots."

Another option for older homeowners who are worried about not being able to cover the cost of their bills with their savings is to use equity release.

These are available to people between the ages of 55 and 95 and allow them to unlock money from the value of their home.

Negative impact

General secretary of the Trades Union Congress Brendan Barber also spoke of how inflation is having a negative impact on the spending power of ordinary households up and down the UK.

"The stubbornness of inflation, combined with poor wage growth, is putting real pressure on people's finances in the run up to Christmas," he said.

Mr Barber added further cuts to in-work benefits are due in April 2013, which is going to place even greater strain on families all over the country.

Dr Ros Altmann, director-general of Saga, described the inflation figures as "dreadful" for savers, pointing out the base rate of interest in the UK has been at a record low of 0.5 per cent for years.

She noted how this has "had disastrous effects on disposable incomes and the spending power of millions of households which means monetary policy has actually damaged significant parts of the economy".

However, it was not all bad news for older adults, as data revealed by the Alliance Trust Research Centre indicated that the over-75s face the lowest rate of inflation, at 2.1 per cent.

This is in stark contrast to figures from a little over a year ago, when the rate of inflation affected people over the age of 75 was well over the five per cent mark.