Silver RPI – measuring the true impact of inflation on those later in life
Age UK together with Fathom Consulting, have recently produced a report which investigates how the increase in the cost of living is different for different age groups.
The report explored the typical basket of good that is used to make up the current headline of RPI and compared it with the typical basket of goods purchased by those in later life. The results showed that their where significant differences.
‘Silver RPI’ has been devised to try and give a better indication of these changing price movements. The Silver RPI demonstrates that, over the past three years, those over 55 have experienced significantly larger increase in the cost of living than is suggested by the headline RPI. In real terms, this gap costs an average over 55 year old almost £1,000 per year.
Changes in cost of living since January 2008
|
Age Band |
Increase in the cost of silver RPI basket |
Change relative to headline RPI |
|
|
|
|
|
55-59 |
14.33% |
+ 3.51% |
|
60-64 |
15.14% |
+4.32% |
|
65-69 |
15.83% |
+5.01% |
|
70-74 |
16.10% |
+5.28% |
|
75+ |
15.59% |
+4.77% |
|
Over 55 |
15.40% |
+ 4.58% |
|
Headline |
10.82% |
|
Source: Age UK & Fathom Silver RPI Report 11th May 2011
There a whole number of factors which influence this but some of the key themes are:
- The over 55’s spend a greater proportion on food, so as the relative cost of food goes up, all other things being equal, RPI for this age group increases more than for a younger age group.
- Mortgage interest is relatively low at the moment, but most people of retirement age have no mortgage so do not benefit from this, which further increases RPI for this group.
- Increase in petrol costs remain a significant burden on the over 55’s.
Those in later life cannot be considered as one single group in financial terms. Over 55s experience money and changes in prices in a different way to the general population, which also changes as they age.
Therefore, more than any other group, those in later life who are retiring or are approaching retirement must have a reliable measure of how their costs will change year by year so they can accurately plan their financial future.
What is clear is that a one-size-fits all approach to planning income in retirement is too simplistic and a more flexible bespoke solution to the changing income needs will be required in most cases.
That of course is where your friendly IFA at Investing Ethically comes in! Please contact me at andy@investing-ethically.co.uk if you would like to discuss these issues in relation to your own situation in more depth.
