Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s good news that price inflation is heading down, especially when a slight rise was expected, but this is unlikely to be enough to stave off another rate rise from the Bank of England. Slightly lower inflation is unlikely to make people feel more comfortable with their household budgets, as we head into Autumn and the season of higher energy bills.
Those facing higher mortgage rates or rent bills, or who have not received an increase in their wages in line with the average of 7.8% in the year to July, may feel less able to cope with still relatively high ongoing inflation. Having the ability to save or invest regularly may come down to whether someone is paying rent or a mortgage or has experienced a pay rise. For many, saving for the future remains on the back burner, while meeting short term living costs remains challenging.
Anyone who currently has money spare at the end of the month to save could benefit from higher interest rates from savings accounts, or make the most of their ability to put more money aside for the future in pensions and ISAs. Tax relief on pension contributions remains a great, unique ballast against the impact of inflation on a pension pot.
Seek out the best savings rates if you are looking for a short term home for extra cash. Consider making the most of any spare cash from a pay rise by putting that additional money in your pension.”
State pension implications
“For pensioners, it looks almost a dead cert that the state pension is set to rise in line with earnings rather than inflation next April, as the triple lock dictates that it increases with whichever is the highest of earnings, inflation or 2.5%. That’s unless the Government chooses to break or manipulate the lock to make the rise more manageable to the public purse.”
Pension saving implications
“Lower inflation is good news for savers trying to grow and preserve the value of their pension pots, although 6.7% is still relatively high by historic standards. Higher prices have been quickly eroding the value of people’s life savings and making it harder to retire for many, as what they had built up is less likely to be enough to last through retirement. Greater price stability will be particularly welcomed by those planning retirement, who may feel more secure about their future retirement income, in a more stable economic environment.”
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “After a tough couple of years of squeezed living standards it’s nice to see some light at the end of the tunnel with inflation now below the rise in average earnings.
“However, it’s fair to say not everyone will be feeling the benefit, particularly with meteoric interest rate rises continuing to put pressure on household finances. If you do find yourself with even a small amount of spare cash, it may be worth considering topping up your short or long-term savings. A more positive side effect of rising interest rates has been better returns on cash savings, with some best-buy accounts now offering rates not too far off inflation.
“It’s recommended everyone has three to six months’ worth of their salary in an easy access ‘rainy day’ savings account, to meet those sudden unexpected events that come up in life. If you’ve got this covered, it’s worth considering putting a bit more into a longer-term savings option, such as a pension. Even a small increase in your contributions has the potential to make a big difference later in life, boosting your standard of living in retirement. Our recent calculations found that just a 1% increase in contributions could lead to a £58,000 boost to your pot.
“As pension plans are invested, they provide the opportunity for the pot to grow – and for further gains on that original growth, known as compound investment growth, giving them the potential to beat the rate of inflation. It’s still a tough time for many – but if you possibly can, saving for your future is likely to pay off in the end.”
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