£38m needed to fill inflation gap

People in the UK need to lay their hands on an extra £38 billion in order to have the same standard of living they experienced in 2010.

For households where the main occupants are aged between 65 and 74 that figure falls to £3.27 billion and it drops further to £2.15 billion where the inhabitants are over 75.

Despite the recent fall in inflation, MGM Advantage, the retirement income specialist, warned that people are still feeling the pinch and have seen a noticeable change in their finances in the last 12 months.

With the average household expenditure estimated to be £35,978, the typical household would need to spend an additional £1,469 to achieve the same standard of living they enjoyed a year ago.

This equates to an estimated £611 per person in the UK, a figure which is relatively higher for those over 65 as they have lower average household income and expenditure.

"Inflation continues to have a significant impact on the finances of retired people. Given the fact that people are living longer and their retirement incomes are shrinking, many more people face an uncertain future," warned Aston Goodey, sales and marketing director at MGM Advantage.

He explained that for this reason, more and more people are thinking about inflation-busting solutions.

Robin Ellison, head of strategic development for pensions at Pinsent Masons, said that the best bet people have is to start saving as soon as possible, as compound interest on savings over a long period can be incredibly beneficial.

However, he conceded that young people have a lot of financial priorities these days, including saving for a home and paying off student debt, meaning that building up funds for retirement falls to the bottom of the list.

Nevertheless, as people will be retiring later, they also have more time to build up some savings, he said.

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2012-01-18 14:00:00 © Moneyextra.com