Source: ONS

The A word

2022 was a difficult year for investment markets. The sharp rise in inflation prompted a similarly rapid increase in interest rates from the US, UK and European central banks. The common goal was to slow their respective economies, thereby choking off inflation. The threat of a recession depressed stock markets, while rising interest rates pushed down the value of Government bonds and other fixed interest securities. Many people relying on regular pension fund withdrawals saw their retirement pots shrinking just as they needed more income to counter inflation. Some people nearing retirement may well have decided to keep working (please see above), hoping the pension funds would recover.

If 2022 was the year when the risks of pension fund withdrawals became clear, it was also the year when annuities – once the traditional retirement income solution – attracted fresh attention. Rising interest rates and falling bond prices were good news for would-be buyers of annuities. For example, the best non-increasing annuity rate for a 65-year-old jumped by over two fifths in the year from early December 2021, to about 7.25%.

The State Pension

From April 2023, State Pensions will increase by 10.1%, the annual rate of CPI inflation to September 2022. That marks the reinstatement of the ‘Triple Lock’ for the main State Pensions (increases that are the highest of price inflation, earnings growth and 2.5%). One consequence is that the 2023/24 headline value of the New State Pension, which applies if you reached SPA after 5 April 2016, will exceed £10,000 a year (£203.85 a week).

Despite reaching five figures, the State Pension is not enough to provide even the minimum standard of living for a single person according to 2021/22 estimates made by the Pensions and Lifetime Savings Association (PLSA). It is also just 56% of what you would earn for a 35-hour week based on the 2023/24 National Living Wage of £10.42 an hour.