How inflation affects your pension over time

Inflation reduces spending power

Inflation means prices rise over time. If your pension grows more slowly than prices, the number on the statement may increase while the real buying power of the money falls.

This matters because pensions are long-term. Money you plan to use in 10, 20 or 30 years needs to do more than sit still. It needs a reasonable chance of keeping up with the cost of living.

Cash can feel safe because it does not usually move around like investment funds. But over long periods, cash can be risky if inflation quietly eats away at what it can buy.

Investing involves ups and downs, but growth assets are often used in pensions because they may offer a better chance of beating inflation over time.

What to think about

• Compare returns with inflation, not only with zero.
• Think in terms of future spending power.
• Use your time horizon when deciding risk level.
• Review whether very cautious funds can meet long-term needs.
• Remember that retirement spending can rise too.