Pension savers will finally see “real returns” on their retirement investment following this week’s inflation announcement, according to experts.
The rate of inflation for the 12 months to February 2024 eased to 3.4 per cent, the Office for National Statistics (ONS) said yesterday.
This is a significant drop from the previous month’s reported four per cent rate and suggests inflation is edging closer to the Bank of England’s two per cent target.
Meanwhile, the central bank opted to keep interest rates at 5.25 per cent earlier today which means savings accounts will likely continue to benefit from more attractive rates.
Analysts believe the latest drop in inflation will be beneficial for those preparing for retirement in the long term.
This comes following the publication of research that found millions of pensioners are £200,000 short of the basic standard of living.
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Inflation has fallen which could benefit pension savers
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Becky O’Connor, the director of Public Affairs at PensionBee, suggested pension savers should feel optimistic regarding the state of the economy.
She explained: “Inflation is heading back down to more normal levels quickly and while 3.4 per cent is historically on the high side, in the context of the extreme highs we’ve been living with, it’s a positive sign.
“For pension savers and other long-term investors, real returns are back on the table.
“The prospect of beating inflation with either stock market growth or interest rates on savings accounts is now broadly achievable, having been difficult over recent months.”
Despite savings been bolstered by hiked interest rates, the impact of inflation has diminished returns for many people.
With inflation falling at a time when rates are remaining relatively high, savers will be hoping for better returns over a period of time.
Despite this, the retirement expert highlighted market volatility continues to be an issue but “relief” is on its way for pensioners.
Ms O’Conner added: “Pensions are long-term investments designed to beat inflation over many years, even if there are some volatile times along the way.
“The recent period of exceptionally high prices, coupled with unreliable investment growth, has been a worrying time for those trying to build future financial security as well as those in retirement already.
“An improved inflationary outlook, together with expectations of decent returns, will be a relief.”
LATEST DEVELOPMENTS:
The Bank of England hiked interest rates 14 consecutive times before holding it at 5.25 per cent GB NEWSAs well as this, the Government has reiterated its “commitment” to keeping the state pension triple lock.
This means that payments will rise by either the rate of inflation, average earnings or 2.5 per cent every year.
Next month, both the new and basic state pension will be awarded an 8.5 per cent payment hike in line with average earnings.
As a result, the current new full state pension will rise to £221.20 a week, or £11,502 a year, while the basic equivalent will increase to increase to £169.50 a week, or £8,814 annually.