Concerns over the impact of rising inflation on retirement planning have persisted, despite UK inflation levels seemingly beginning to stabilise, with the Consumer Prices Index (CPI) falling from 10.7 per cent in November to 10.5 per cent in December 2022.

Canada Life technical director, Andrew Tully, warned that the slight fall will offer “little by way of comfort”, noting that while inflation may be ‘cooling’ from the peak of last year, prices for everyday goods and services will continue to rise, just not quite as quickly as in 2022.

“It really is crunch time as pay deals are negotiated across public and private sectors, with economic forecasts predicting a deep and protracted fall in our living standards,” he continued.

“For people on fixed incomes, especially those drawing on their pensions in retirement, a double-digit rise in state pension from April will offer little light at the end of the winter months.”

These concerns were echoed by Quilter financial planning expert, Rio Stedford, who warned that inflation can have a "devastating impact on a retirement pot and could seriously change retirement plans at very short notice with people choosing to work longer and delay retirement".

Furthermore, although Stedford acknowledged that those with a defined benefit (DB) pension may see their pension payments increase in line with inflation, he noted that this could be limited by a scheme cap.

Indeed, industry experts have previously raised concerns over the impact of inflationary caps in the current environment, with XPS Pensions warning that these caps may see some DB pensioners miss out on £500 a year of income, equating to a real income loss of over £10,000 over a lifetime for someone at state pension age.

And whilst the prices rises have slowed in the past month, XPS Pensions Group senior consultant, Charlotte Jones, noted that “even half the current rate of inflation will see UK pensioners potentially miss out on full inflationary increases to their benefits due to the increase caps in place for the second year in a row”.

“The implications are especially significant for members looking to retire early in this high inflationary environment, as they potentially swap full inflationary increases before retirement for capped increases after retirement,” she added.

“With the level of complexity involved, many pensioners will need support to fully understand the impact this high inflation environment is having on their benefits.”

WPS Advisory CEO, Simon Chrystal, also stressed the need for savers to take advice in light of rising inflation, arguing that people are being forced to make “tougher-than-ever decisions” over retirement in the context of rising inflation.

He stated: "The impact on individuals at a point where they were hoping to move away from work into retirement, with sustained and continuing price increases is going to remain a critical, painful issue for the foreseeable future.

“Inflation isn’t just ‘economic data.’ For both workers and retirees, it can be detrimental to their retirement savings, opportunities and ambitions.

"They spend all of their lives working hard and building up assets relating to their values, and both are eroded by inflation. It threatens what they have built-up over the years, prudently put aside for their desired retirement, and their legacies.

“This is all a considerable worry and forces many to make purely emotional decisions at a time they are vulnerable, rather than informed decisions about the future.

“This vulnerability, for some, will see them become easy targets for scammers, or industry sharks promising higher investment returns, more income and, more access to lump sums.

"In this unforgiving economic and financial environment, workers and retirees need help, more than ever before, to make informed decisions.”

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