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Falling inflation shores up pensioner finances

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Falling inflation has put more cash in pensioners’ pockets, but they are using their new-found financial freedom to pay off debt and boost savings, according to research from Aviva.

UK inflation reached a 15 year low of 0.5 per cent in December, driving down the cost of basics such as food and utilities. At the same time, Aviva’s Real Retirement research (Q4 2014) shows the average income among over-55s experienced a 3 per cent annual uplift.

Yearly disposable income has risen by £1,032 (6 per cent) since Q4 2013 (£86 per month) and by £1,440 (9 per cent) compared to Q4 2011. This has led to a significant rise in over-55s’ standard of living and helped to boost savings, as well as reduce unsecured debt.

In Q4 2014, over-55s received an average of £1,924 in monthly income – a 3% increase year-on-year and a rise of 8 per cent since 2011. While average incomes have risen, over-55s’ monthly expenditure on essentials (incorporating food, housing, utilities and transport) has fallen from £460 in Q4 2013 to £427, resulting in monthly savings of £33 (or £396 per year).

Falling food prices have been the most important factor: Over-55s’ average monthly food bill reached a record high of £210 in Q4 2013: since then, it has fallen to £196, suggesting over-55s are seeing the benefits of falling food prices.
This boost in disposable income has given over-55s the confidence to spend more on luxury items and recreation. Monthly spending on entertainment, holidays and recreation has risen steadily since Q4 2011, when the average monthly spend was just £59.

However, many are also using their improved financial freedom to reduce their debts and grow their savings pots. Average monthly savings stood at £214 in Q4 2014: an increase of £39 (22 per cent) year-on-year from £175 in Q4 2013 and £80 (60 per cent) increase from £134 in Q4 2011.

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