Just as pensioners thought the cost-of-living crisis was over the Iran war strikes (Image: Getty)
Oil prices are volatile and stock markets are swinging wildly, and pensioners may feel the effects more than most. But they are lucky in one respect. The state pension should remain safe. The triple lock still applies and pensions will rise by 4.8% in April, protecting their value against inflation, at least for now. The only concern is that if the public finances are squeezed, it could raise questions about the triple lock. For now, the state pension remains a rock to build retirement on.
Private pensions and Stocks and Shares ISAs are another matter, as rising oil prices panic markets. Adrian Murphy at financial planners Murphy Wealth, said today’s volatility is uncomfortable but not unusual. “Markets have suffered repeated shocks in recent years including the pandemic and Russia’s invasion of Ukraine, but always recovered.”
He said long term-investors should resist the urge to sell because recoveries often arrive suddenly. Those who panic risk turning temporary losses into permanent ones.
That said, pensioners who expect to need money from their investments in the next two or three years should be more cautious. Cash is a safer home for short-term money, and savings rates may remain relatively high. Cash ISAs are a tax-free bolthole, so use the allowance before the April 5 deadline.
Retirees drawing an income from their pension via drawdown face a more immediate challenge. Their retirement pot remains invested while they withdraw cash, so falling markets can reduce its value. Tom Selby, director of public policy at AJ Bell, warned that taking large withdrawals when investments are depressed can permanently damage the size of the pot.
Experts suggest keeping enough cash to cover up to three years of essential costs, to avoid selling investments when markets are down. Now may be a good time to use it.
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Annuities, which pay a guaranteed income for life, have swung back into favour as rates improve dramatically. Today £100,000 buys a single 65-year-old a level annuity paying about £7,769 a year, Hargreaves Lansdown says. That’s up from roughly £4,500 a decade ago.
But drawing pension during a market dip to fund an annuity purchase could leave pensioners with less income. Delaying until markets recover might make sense. And if inflation and interest rates rise, annuity rates could rise even higher. Timing financial decisions in this way isn’t easy though. Consider advice.
Those who already hold an annuity enjoy peace of mind because payments continue regardless of global turmoil. However, inflation is a worry, Selby said. If prices rise sharply fixed incomes will buy less over time,
Those who still get defined benefit ‘final salary’ pensions are the lucky ones. They’ll continue to get a guaranteed income based on salary and years of service. Events in Iran shouldn’t directly affect those payments. Even if the sponsoring employer collapsed, the Pension Protection Fund acts as a safety net. Pensioners may receive slightly less than originally promised but they won’t lose everything. The most immediate pressure may now come from rising household bills.
Higher oil prices are already pushing up wholesale energy costs, and risk sending household bills through the roof again.
From April 1, the Ofgem energy price cap limited typical dual-fuel annual bills to £1,641 a year. Anyone on a fixed tariff is protected for the length of their deal. Worryingly, analysts Cornwall insight now predict the energy cap will rebound to £1,801 from July, an increase of £160. Pensioners will feel that because they spend more time at home and use more heating and electricity.
Richard Neudegg, director of regulation at comparison site Uswitch advised households to compare deals. “There are still some fairly-priced fixed rates available below these predictions, offering stability.”
Petrol prices are already climbing. Unleaded has raced past £1.37 a litre and diesel is heading towards £1.50. Prices could hit £2 if oil keeps rising. Maybe it’s time to go electric.
Motoring expert Matas Buzelis at vehicle history platform carVertical said motorists can reduce the impact by driving more smoothly, keeping tyres properly inflated and avoiding aggressive acceleration that wastes fuel. “Smoother driving can cut fuel economy by up to 40% in stop-start traffic.”
Careful route planning also helps, while combining shorter journeys prevents engines running inefficiently when cold.
Keeping on top of basic maintenance is vital. Worn tyres, neglected filters, misfires, or sensor faults all increase consumption. If petrol prices stay high, consider downsizing to a smaller, fuel-efficient car.
Interest rates are another concern. Higher inflation could delay the expected cuts from the Bank of England, keeping borrowing costs elevated.
Most pensioners have paid off their mortgage, but those still making repayments may face higher costs if rates remain high. On the positive side, savers could benefit from better returns on cash accounts if rates stay elevated.
Pensioners cannot control global events, but they can take practical steps to limit the damage. Staying calm, keeping some savings in cash and watching household spending carefully may prove the best defence if the crisis deepens.