Do you understand the negative effect inflation has on your cash savings?
- Shunil Roy-Chaudhuri
- 05 September 2022
- 5 mins reading time
The UK inflation rate, as measured by the Consumer Prices Index (CPI), hit 10.1% in July, its highest level since 1982. Meanwhile, July CPI hit 8.5% in the US, 7.5% in Germany, and 6.1% in France.
This has been partly driven by pandemic-induced shortages of goods, such as semi-conductors, which has led to a rise in their prices. But it is also driven by shortages of commodities, such as oil, gas and wheat, due to the tragic events in Ukraine.
Rising prices have led the cost of living to go up for people across the world. We at Schroders Personal Wealth (SPW) decided to find out how this is affecting people in the UK.
In August 2022, SPW conducted a survey on the impact of inflation on UK consumers. We focused particularly on people in or approaching retirement: 70% of our 1,000 respondents were aged 55 to 80, while the remaining 30% were aged 18 to 54.
Impact on savings
Perhaps unsurprisingly, given the rise in household energy bills, 69.9% of respondents thought the biggest cost on themselves and their families would come from rising oil and gas prices. What we found more surprising is only 53.3% of people were aware of the impact of increased inflation on their savings.
This is despite the fact that the current highest-paying easy access savings account, which allows account holders to withdraw funds without giving prior notice, pays just 1.86% a year (1). Given the 10.1% inflation rate, we estimate that the purchasing power (the financial ability to buy products and services) of these account holders’ savings would have reduced by 8.24% in 12 months.
We were also taken aback that more than a quarter (26.2%) of respondents aged 55 and above were not sure how the increased cost of living would affect their retirement plans. Moreover, 9.2% were unconcerned about higher inflation.
Do you know if inflation is impacting your finances?
Use our inflation healthcheck tool to find out.
During times of such economic uncertainty, it’s more important than ever to create a robust financial plan to help you mitigate any potential setbacks to your future finances. Simply answer a few short questions to discover if, and when, you could take action to protect your finances against inflation.
Retirement impact
We are concerned that 44.6% of those aged 55 and above say they have delayed their retirement or made cutbacks to ensure they remain on track with retirement plans. But we draw some comfort from the fact that these respondents are at least aware of the financial impact of rising living costs. Additionally, the rising cost of living has resulted in 10.8% using savings or investments to help them live, while 4.8% have come out of retirement to take a part-time job.
We also note that only 23.9% of respondents aged 55 and above say they can still afford to retire in today’s higher inflation environment. Meanwhile, a combined 76.1% either can’t afford to retire (35.4%) or are unsure if they can afford to retire (40.7%). Concerningly, 30.6% of these last two categories believe they will now have to delay their retirement by at least four years.
The impact of today’s high inflation on our everyday lives, our retirement plans and our pension pots has been significant. This is an economic terrain many people could find challenging to negotiate. If you would like some assistance with these matters, then you may benefit from the support of one of our Personal Wealth Advisers. Please call us on 020 8252 7077 or email us at client.info@spw.com to book a free initial consultation. Please note that at Schroders Personal Wealth we have no hidden fees or charges. What’s more, you’ll only have to pay us if you decide to proceed with the recommendations in the personalised financial plan that we create for you.
(1) Moneysavingexpert.com, ‘Top savings accounts’, 1 September 2022.
Important information
Any views expressed are our in-house views as at the time of publishing.
This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.
Fees and charges apply at Schroders Personal Wealth.
In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.
There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.
All information correct at the time of publishing.
Let's start with a free initial consultation
We'll begin with a free, no obligation conversation to understand if our service is right for you. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.