Millions of Britons could potentially see their savings shrink should inflation start to rise.
The latest inflation forecast figures due out (15th August 2017) showed prices rising at 2.7% but with pay remaining flat even with the news that unemployment continued to fall. In the end the Office for National Statistics showed that the consumer price index (CPI) remained at 2.6% the same as the previous month.
There are a number of different factors creating inflationary pressure in the economy including rising commodities and oil prices. A strong economic growth pushes up inflation also with an increase in the demand for goods and services potentially leading to an increase in prices. The falling pound also contributes to higher inflation as that makes importing goods more expensive.
The rising inflation and the stagnating growth in British households pay packets eats away at the nations savings placing a rising pressure on households. Philip Shaw, chief economist at Investec forecasts inflation to gently rise over the coming months to 3%.
The reality is that most people don’t know how to protect their savings and it could see their wealth simply drain away.
In the long-term this is a threat to people becoming financially worse off in retirement especially if you take in to account low interest rates and the stagnant wage growth.
So what can we do to minimise the risk? In a survey by YouGov 27% felt property was a good way to outpace inflation, 13% thought Cash ISAs could help maintain spending power and surprisingly only 7% said investing in stocks and shares ISAs would help particularly as these offer more protection against inflation than Cash ISAs even though there may be a greater investment risk. As the ISA pot increases yearly, now at £20,000 a year, the biggest danger is that some may leave more of their long term cash savings in cash.
Alistair Wilson, head of Zurich’s Retail Platform Strategy said “If you are putting money aside for the long-term, a workplace pension is one of the best ways to grow your savings, and prevent them from being eaten away by inflation. Not only do you receive a top-up from the Government in the form of tax relief, your employer is also likely to put money into your pot, which can help turbo-charge your savings.”
So here are three simple steps to help beat inflation
1. Shop smart – research before making a purchase
2. Consider stocks & shares ISA rather than Cash ISA
3. Top up your workplace pension – benefit from matched employer contributions, you receive tax relief and are better protected from short term market fluctuations
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.