UK inflation falls to four-year low
The UK's inflation rate has fallen to below the 2% target set by the Bank of England for the first time in more than four years.
In a boost to consumers, savers and anyone else concerned about the cost of living, figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) fell to 1.9% in January - the seventh consecutive monthly fall.
The ONS said the fall was a result of price drops in recreational goods such as the DVDs and tickets to cultural events, household goods and alcohol and tobacco.
Another measure of inflation, the Retail Prices Index – which includes mortgage payments – rose 0.1% to 2.8%.
Vanessa Owen, LV= head of annuities and equity release, said the news was particularly welcome for retirees.
"The fall in the rate of inflation is great news for those worried about the rising cost of living. This is especially good news for those in retirement who are often hit hardest by rising inflation," she said.
"This section of society spend a significantly higher proportion of their disposable income on bills, such as heating, and less on luxury items."
Recent LV= research found that almost half of over 65s are concerned about the impact inflation will have on their retirement income. And with people spending longer in retirement, it's more important than ever they carefully structure their income.
While the majority of annuities sold today are still purchased on a level basis – meaning the rate of income stays flat - there are retirement solutions available that provide an element of inflation-proofing.
They could consider an investment-linked annuity, which offer retirees the potential for future growth, added Owen. Or if they qualify for an enhanced annuity, the higher income will help to offset the impact of inflation as their life expectancy reduces the time for inflation to take effect.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.