People approaching retirement are caught between falling equity values and rising inflation according to a Daily Express report. (1)

Research by Annuity Direct, based on the findings of Professor Paul Sweeting of the University of Kent, found that those retiring in the next 12 months will be worst hit if shares fall further. Bob Bullivant, CEO of Annuity Direct, said: “There is a one in 20 chance of losing over 22 per cent of the value of a pension fund simply by keeping the fund invested solely in shares in the year before retirement.” (1)

Annuity values are also falling while prices are rising. According to Saga the over 50s are particularly badly affected by inflation. Since the start of the credit crisis, inflation for older age groups has removed nearly a fifth of their purchasing power The Saga Price Index shows that the cost of living for older people has risen substantially in the past four years. (2)

The organisation says that since the credit crisis began four years ago, the effect of RPI has been to reduce the purchasing power of money by 13.9pc – which may surprise some people, as they tend not to notice the cumulative effect of inflation. (2)

The cumulative effect of inflation over the same period on those aged between 65 and 74 has been 18.8pc, says Saga If you are living on a fixed annuity, that’s money you will never recover. (2)

There are several things to consider if you are nearing retirement:

- Check with your pension provider to see how your investments are performing.

- Check whether you are still heavily invested in equities and if so what you can do about it.

- Delay buying an annuity – but note that annuities rates may continue to fall.

- Make sure when buying an annuity that you have compared rates in the market.

- Look at enhanced or impaired life annuities – if you have a lifestyle or medical condition that may shorten your life span then you may be able to buy an annuity that pays more in the early years.

- Buying an escalating rather than a fixed or level annuity because it will take account of inflation over what may be a very long time in retirement.

- Use a pension calculator to check how much retirement income you can expect.

Sources:

(1) Daily Express report, 16 August 2011

http://www.express.co.uk/posts/view/265283/How-the-shares-crash-has-wipe...

(2) Saga webpage accessed 8 September 2011