News Archive - May 2008
Inflation Inflation Inflation
20/05/2008Inflation is back in the news again.
With rising food costs, more expensive mortgages, and soaring fuel and utility bills, it was inevitable that a higher rate of inflation would return. Sadly, the root causes of many of these rising costs are from global events, and largely outside the control of the Government. Growing economies (for example, China and India) are increasing global demand which is forcing up prices. Fossil fuels are a scarce resource. The biofuel alternative (fuel from crops) has put a premium on agricultural land, which in turn increases the price of staple foods.
A few years ago it looked like we were set for a prolonged period of low interest rates and low inflation. This now seems less likely.
So how does this affect pensions and retirement planning? Well, one important thing is to ensure that your pension contributions keep pace with inflation.With a company pension this is usually achieved by paying pension contributions as a percentage of salary. Assuming your pensionable salary increases each year, your pension should have some protection against inflation. However, with a personal pension or many stakeholder schemes, it will be up to the individual to increase their own contributions.
Most personal pensions allow you to automatically increase the premiums each year by a set percentage, or by the rate of price inflation. The increase each year will be negligible, but this will have a huge effect over the long term that your pension will run. At Mulberry Financial we usually recommend automatic increases to keep your pension on track without you having to worry about it each year. However, we will review your pension each year and talk to you about how much you can afford to put away.
As Independent Financial Advisers we can also advise you how to protect your savings and investments from the effects of inflation. In times of high inflation, the worst long-term investment is cash. Give us a call for a free meeting to discuss how we can help you.