Retirees are being caught off guard and not considering the impact that inflation has on their pension savings, research by People’s Partnership and State Street Global Advisors (SSGA) has found.

Their New Choices, Big Decisions longitudinal study followed a group of older pension savers up to and into their retirement since 2015, the year pension freedoms were introduced.

It revealed that, despite having experienced the pressures of the rising cost of living, people who have retired still do not factor in inflation when accessing their defined contribution (DC) pensions.

This has meant that their pension savings may not go as far as they had been anticipating.

The study recommended that stress-testing planning tools offered by financial service providers should provide a greater focus on inflation protection.

It also urged pension providers to improve the information they provide on inflation in their customer information and education resources.

The report, which will be published in full next year, highlighted concerns around the lack of attention given to pension pots already in drawdown and warned that certain savers may receive inadequate communication about whether their previously made investment choices remained appropriate amid evolving economic conditions.

"This unique study shows that people don't necessarily make the right choice and, without support, they tend to develop an inflation 'blind spot' in their retirement planning,” commented People’s Partnership director of policy, Phil Brown.

“We mustn't forget that the recently retired vividly remember interest rates at 15 per cent and above in the 1970s and early '80s, yet many still don't factor in inflation when planning their finances.

“This vital research underlines the need for savers to have access to retirement planning tools and products which factor in inflation and highlight the risks that poses to savings. There is a real danger that some retirees will have less in their pockets over the longer term than they had first anticipated.

“These findings are further evidence that the average saver, especially those in their 60s and 70s, require more support when it comes to accessing their retirement pots, especially those who entered into drawdown before the economy experienced its current challenges.”

SSGA head of retirement strategy, Alistair Byrne, added: “Our research underlines the challenges individuals face when making decisions about how to access their pension pots. It’s clear they need more support from the industry, and access to well-designed solutions that deliver a balance of flexibility in early retirement and life-long income in later life.”

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