Inflation ‘rearing its head yet again’ – pension savers urged to invest now

Martin Lewis on how much you should be putting in your pension

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The COVID-19 pandemic has had a massive impact on the economy not only in the UK, but the world as a whole. Inflation rates in Britain have been rising to astronomical levels in recent months, prompting concern from pensioners and pension savers alike.

Inflation rose all the way to 5.1 percent for the year to December 2021, a decade-high figure.

This has left pensioners worried about the cost of living, and has also made it more difficult for those saving towards retirement to carry out their plans.

James Norton, Head of Financial Planners at Vanguard, made his predictions on inflation in 2022 and suggested what pensioners should do to adapt.

He told “As we’ve already seen, inflation is rearing its head yet again, fuelled by high energy prices and growing demand as more businesses and consumers break free from their pandemic chains and supply struggles to keep up.

“Vanguard anticipates headline inflation to peak at around five percent in the first half of 2022, driven by higher food and gas prices, rising pressures from non-energy industrial sectors such as steel, and an April increase in the energy price cap.

“Yet, as the effects of energy price rises unwind and as supply bottlenecks ease, we expect inflation to fall to 2.5 percent by the end of 2022.”

He urged pensioners to focus on what they can control, and try to “tune out the noise”.

Mr Norton believes investment is the key for Britons to beat inflation and keep their retirement savings afloat.

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He said: “Inflation has a key role in investment and is a key reason to invest in the first place.

“Inflation at 2.5 percent is very likely to outpace the interest available on cash savings, meaning the real-world value of these savings will decline.

“By encouraging your capital to grow over the long-term you are seeking a return that more than compensates you for the corrosive effects of inflation.

“If instead you kept your money in a savings bank account or opted for a cash individual savings account (ISA) rather than a stocks and shares ISA, your money would earn even less.”

Mr Norton also encouraged people to mix bonds into their investment portfolios to keep them diversified.

He said: “We don’t believe bonds are there to drive your investment returns – that’s the job of your shareholdings.

“Instead, the role of bonds in an investment portfolio is to act as shock absorbers.

“In essence, they act as a steadying influence whenever your stock market holdings aren’t performing well.”

Another thing for savers to consider is the cost of their investments in terms of fees, which could be eating into profits.

Mr Norton said: “Nobody can control the market, but you can control what you pay to invest.

“With inflation at 2.5 percent, an investor paying 1.5 percent in platform and fund fees, will need to make a four percent return in order simply not to lose money. This is essential to your long-term investing success.

“Stick to your plan, focus on long-term goals and ignore the noise! People often panic when it comes to inflation, but really there’s no need.”

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