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How to protect your retirement savings as living costs rise

Mature woman doing personal finances at home

Worried about the cost-of-living crisis impacting your pension? These expert tips could help.


Pension savers are among those feeling the squeeze as living costs rise – with some people considering cutting back what they are paying in, or worrying that the amount they have put by won’t be enough.

More than a quarter (27%) of recent retirees say they don’t know how to reduce the impact of inflation on their retirement income, according to research by asset managers abrdn.

Wondering how you can protect your pension and retirement income as living costs soar? Colin Dyer, a financial planning expert at abrdn, shares his top tips…

1. Make your money work harder

Cash savings rates have been improving in recent months following a string of Bank of England base rate hikes, but inflation is still eating away at the real value of people’s savings pots.

The Financial Conduct Authority’s Financial Lives survey found 4.2 million people in the UK hold more than £10,000 in cash and are open to investing some of it.

Dyer says: “With inflation reducing the real value of your savings, it could be worth looking at how your money can keep up with or outpace inflation. This isn’t going to happen if you keep all of your money in cash savings.

“Weigh up the types of medium and longer term savings and investment products available to you.

Or, if you already have money invested in a pension or elsewhere, you might want to consider reassessing your attitude to investment risk,” he adds.

“Remember too that if you withdraw too much too quickly from any pensions you have, you could be at risk of falling victim to your savings losing value in real terms amidst rising inflation.”

2. Make the most of tax allowances

In general, retirees can take the first 25% of their pension pot tax-free.

“It can be a very good move to use this tax-free cash over multiple years (when the size of the pension pot may have grown bigger), rather than in one go,” says Dyer, adding that it’s important to plan the order investments are used in.

“Speaking to a financial adviser could help you to minimise your tax bill to make sure you’re getting more income.”

3. Think about consolidating old pensions

Transferring and consolidating your pensions could provide a much-needed boost to your pension pot and income.

Dyer explains: “All you need to know is the name of your employer or pension provider to track down a lost pension. If you don’t have those details, you can use the Government’s Pension Tracing Service.

“Consolidation isn’t right for everyone, so it may make sense to speak to an expert to get information on your situation, just in case you’re giving up valuable benefits or guarantees by combining pensions,” he adds.

4. Could a ‘flexi-retirement’ boost your income?

Recent research from Aviva found nearly a quarter (23%) of people with a pension are considering withdrawing money from it, or stopping paying in, or reducing the size of their contributions, to ease the pressure on their finances.

While this may ease some pressure on their finances in the short-term, it could also lead to some people needing to work for longer to build their pensions back up again.

Survey findings from abrdn, meanwhile, suggest two-thirds (66%) of adults who “retired” in 2022 will continue to do some work.

“Working in retirement could give you the peace of mind with a steady flow of income continuing, and many in our recent research admitted to wanting to continue working for the social benefits too,” says Dyer.

“Although it might not be for everyone, it could be worth considering during uncertain economic times. We’d encourage people weighing it up to speak to their employer about the options and opportunities.”

5. Consider whether financial advice could help

A financial adviser can help people to better understand and review their income and spending, as well how to make their income as tax-efficient as possible.

“There are lots of options when it comes to seeking advice, including IFAs (independent financial advisers) and also digital, affordable and accessible sources,” says Dyer.

The free Government-backed Pension Wise guidance service is also available to the over-50s. Plus, people of all ages can get money tips from the free and impartial MoneyHelper service.

The cost-of-living crisis could also push some people towards taking risks with their pension pots after being promised unrealistically high returns. Laura Newman, head of specialist advice and investment services at NatWest, says it’s important to watch out for scammers.

“It can be tempting to be attracted to investment offers that sound lucrative, but as the saying goes – if it’s too good to be true, then it often is,” Newman cautions. “Don’t invest in anything that you don’t understand, and seek professional advice before making significant investment decisions.”


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