The Office for National Statistics (ONS) has confirmed that the Consumer Prices Index (CPI) rose by 3.9 per cent in the 12 months to November 2023, the lowest rate in over two years.

The fall in inflation was larger than expected, with PensionBee director of public affairs, Becky O'Connor suggesting that the news will bring a "much welcomed respite as we approach the New Year".

“For those trying to preserve the long-term value of their life savings, including their pension, returning to lower inflation is vital. Retirees have been struggling to make their pensions last in the face of high inflation; while workers trying to boost their future pension pot have faced an uphill battle to maintain the real future value of their savings," she continued.

"A return to more normal economic conditions will be a boost to financial resilience and security and may enable people to start reprioritising planning, rather than just getting by.”

And pensioners purchasing power could be further boosted if inflation remains at this level, as the government previously confirmed that it would honour the triple lock next April, with pensioners set to receive an 8.5 per cent increase based on earnings growth.

Aegon's analysis suggested that, if inflation remains at 3.9 per cent until then, state pensioners will receive an increase of more than double this amount, which could boost their purchasing power by over 4 per cent after inflation.

However, Aegon pensions director, Steven Cameron, warned that "as always, the big question is whether the triple lock is sustainable long term".

"The state pension is very costly to fund but is a lifeline to millions. We urge all political parties to make their intentions clear ahead of the next General Election. It could have a big influence over voting preferences,” he added.

Adding to this, Hargreaves Lansdown head of retirement analysis, Helen Morrissey, warned that despite the "real relief" news of a fall in inflation will bring, there is still a long way to go, as inflation remains higher than other countries and well above the bank’s 2 per cent target.

"Things can also change rapidly - if we see fuel prices spike again or a strong growth in wages, then we could still see a rate rise," she continued. "Similarly, if the economy looks to be weakening, we could see a rate cut materialise sooner than we think.”

This was echoed by AJ Bell head of financial analysis, Danni Hewson, who said that "there’s a long way to go to chip off that last 1.9 per cent and it’s impossible not to think about the potential impact the situation in the Red Sea could have on the cost of goods and energy".

“It’s Christmas, and we should take a moment to celebrate how far we’ve come, as long as we don’t forget the miles left to travel," Hewson added.

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