- Dr Bob Swarup, Partner, Pension Corporation comments on today’s inflation figures:
“As reported widely, CPI rose to 5.2% while RPI rose to 5.6% - the increases being driven largely by rocketing energy bills. The numbers reflect the painful increases in the cost of living for many people, including pensioners.
“However, even these numbers mask the true crisis for many pensioners. The RPI numbers exclude those pensioners with three quarters of their income coming from state pensions and benefits – a silent majority.
“For these, our investigation (based on official numbers) shows that the inflation rate is 7.9% year-on-year for one person pensioner households and 7.7% for two person pensioner households. These numbers fall to 6.8% and 7% respectively if the less volatile quarterly numbers are used instead.
“Either way, it’s a staggering disconnect between pensioners and the rest of the population.
“We don’t have to dig deep to find the cause:
• These pensioner households spend 22% of their budget on food, compared to just 11.8% for the average household.
• They spend 14.6% on fuel and light, compared to just 4.2% for the average household.
• They spend 11.1% on household services, compared to just 6.3% for the average household. The last is important because this little category includes all the domestic services that we all rely on, such as in home care assistants.
• All told, pensioners are spending nearly half their budget (47.7%) on these three items, compared to less than a quarter (22.3%) for the average household.
“As energy bills and food prices increase, pensioners are particularly vulnerable, particularly those on low incomes.
“Our research indicates that the same vulnerabilities hold true across the broader pensioner population (including all income groups), though they are more muted. Moreover, in 2009, even during a brief deflationary lull for the wider population as housing costs plummeted, pensioners were facing similar levels of inflation for the same reasons.
“The problem is unlikely to get better. Those who expect inflation to fall are looking at the removal of the effect of the VAT increase and easing commodity prices. But food and energy are largely imported and policies such as QE will have a further inflationary impact if the pound weakens. If half your budget goes on food and energy, the outlook is not encouraging.
“For many pensioners, the indexation in the state pension and any other pensions they may have will not match the true rise in inflation for them. Therefore, in real terms, their quality of life has just got worse.”
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