Inflation is a pensioner’s worst enemy. Over time, it will reduce the value of your income unless you take measures to counteract it. With retirement often stretching to twenty to thirty years, your income should keep pace with inflation.
The State Pension and most final salary schemes will usually build in an annual increase. However, if your retirement income is from other sources, you may have to decide how best to protect yourself and your family against future inflation.
With a privately owned pension (such as a personal pension), the choice is yours. You can choose to have your pension paid at a level amount every year or you can build in an annual increase. This increase can either be a fixed amount each year of, say, 3 per cent or 5 per cent or instead you can request that your income moves in line with inflation.
The downside is that the starting income for an increasing pension will be lower than if you choose a level income. You therefore need to weigh up the benefits of both before making your final decision
