Traditionally there are two means of measuring the cost of living in the UK. These are the Consumer Prices Index and the Retail Prices Index. Both are used to estimate just how much the cost of living is rising over set periods and they're employed in various ways to set the amount of increase of pensions.



Whilst this is all very well on paper, how well can they reflect the inflation which individuals are experiencing? As an example, electronics and furniture should certainly factor in inflation figures and certainly younger people setting up home, starting a family or starting a career for the first time will need items such as these, but most pensioners are unlikely to buy these things.

So the guide that might work well for “Mr and Mrs Average” is not going to work so well for “Mr and Mrs Retired”. The basic needs of food and fuel are of far more interest to them and the increase of these costs have been far greater than those reflected in either the Consumer Price Index or the Retail Prices Index.

For a great many people, their home is their biggest investment and is thought of as their retirement fund. Their aim was probably to be able to free up some capital from this investment to give them some sort of income in their retirement years. They have seen house prices sliding down at up to 30 per cent and their comfortable retirement dreams sliding away with them. If pensioners have not succeeded in clearing their mortgage at this time then they go into retirement with this burden too. Where they envisaged selling off their home, clearing their loan or loans and downsizing this must seem a hopeless situation.

It's a fact that it's a real struggle to live on the pension which the state provides. Work pensions which may have seemed very healthy at one time don't look so rosy now and they're also taxable, so once the threshold for personal earnings is reached, much of the benefit has been reduced. Although supplementary state benefits may be available, there's a lot of red tape attached to claiming it and many people are either too proud to admit they need help, or too frightened of all the form filling to contemplate it.

Interest rates on savings have suffered too as a result of attempts to get the economy back into its stride by lowering the rates paid. Again the pensioner with savings that they factored into the equation when working out their retirement funds, have lost out again.

What all this means is that there is very much less cash to spare than pensioners envisaged even a few years ago. There were numerous schemes offering great hopes for retirement income through the boom in property prices but they're no longer realistic as prices continue to fall. This complete change in the market means that planning for retirement is essential. Clearing up any debts, whether it's via a mortgage, simple loans or credit cards is vitally important as people go towards retirement or the debts are going to be unmanageable at a time when there's no potential for increasing income.