Pension savers urged to use ‘toolbox’ to beat inflation – ‘you can do it!’

Pensions and savings: Interactive Investor expert gives her advice

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Inflation is continuing to soar, having an adverse effect on pension and cash saving. However, one expert has suggested those planning for later life will need to act if they are ever going to keep pace with inflation. 

Express.co.uk spoke exclusively to Christine Ross, Head of Private Office – North at Handlesbanken, about the matter.

She said: “I am having inflationary discussions with clients every single day, as people are worried about a high inflationary environment.

“If we can be tax efficient and look to create a return above inflation, then that is what people ultimately need.

“You can’t 100 percent of the time beat inflation, but over a five-year period you can do it – that is what is important to understand.

“When you first look at investing, if you’ve never been in the financial world or managed money before, the first thing you talk about is inflation and tax.

“If you looked at your return and then you pay your tax, even if you never touch your money, it still isn’t going to keep pace with inflation.”

Ms Ross encouraged people to look at the idea of investment, which does involve some risk as individuals may not get back what they originally put in. 

However, the idea of investment is that a broad range of assets can give people a reasonable return.

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A popular form of investment, for instance, comes in the form of a pension which ideally creates above inflation returns. 

The process, the expert suggested, should be one which is relatively straightforward and simple.

To avoid inflation eating away at money, Ms Ross highlighted the importance of using all of the monetary tools at one’s disposal. 

She added: “Make use of your ISAs, make use of your capital gains tax allowance. Generate as many allowances within tax allowances and tax bands as much as possible.

“The tools people have in their toolbox are really all the same, but a lot of people assume you have to have complicated arrangements.

“It doesn’t have to be anything complicated or detailed at all. Instead, it’s about using every single vehicle that is available to you in order to improve your tax position.

“By creating tax-free or low tax returns and combining this with the right level of risk is how you put a plan together.

“But this is even more important now with inflation rising.”

To mediate the risk involved with this form of planning for later life, Ms Ross encouraged a consideration of time.

She said: “It’s important to have a decent time horizon. You’ve got to think about five years or more, and whether this is money you can afford to put away.

“You can draw money, but not for a new car or new home. It’s money you can’t spend because you’re going to use it later down the line for an income.”

Ms Ross went on to cite the example of recently divorced individuals in their 50s, who may not wish to return to work now they have a lump sum.

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This is also true of those who may have come into an inheritance, or a larger amount of money, which can often be viewed as an early pension. 

She continued: “Let’s say someone wants to create a three percent return above inflation, and they want to withdraw three percent from an investment.

“These people have to consider, even at basic rate tax, they still will not hit their income target without looking for a greater return.

“The other way around is to create that level of income without tax being applicable.

“Creating returns through investing is one thing, but it is also really important for people to be tax-efficient – as they can create returns here too.

“Investment return isn’t the only way people can create a return.”

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