Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

YOU’VE no doubt seen the headlines - from “pensioners forced to choose between heating and eating” to “the end of the triple lock is nigh”.

With inflation already nearing a 10-year high of 4% - and now expected to peak at 5% early next year - some 12.4 million people on the state pension, will see their pension pay out rise by just 3.1% to £185.15 in April based on September’s inflation data, after the Chancellor temporarily suspended the so-called “triple lock”, which was there to keep pension increases in line with wage growth.

With the government having refused to budge and instead choosing to stick with its decision to scrap the earnings element of the state pension triple lock, pensioners reliant on the state pension will find themselves exposed to a rapidly rising inflation rate and in so many cases, a very real choice between staying warm or eating well this winter.

According to the Centre for Economics and Business Research the 3.1% pension rise will leave pensioners £169 worse off. But with the figures based on the Bank of England’s projections showing inflation at 3.4% by the end of next year, if inflation tops out at 5% the impact on pensioners’ finances will be even worse.

The decision was taken to suspend the earnings part of the triple lock for one year because the pandemic has had such an unusual impact on earnings. The promise is that it will be reinstated next year, but then a year is a long time in politics and promises are not always kept. So it is not just today’s pensioners but also future generations who would do well to consider now just how the erosion - or end of the triple lock - could impact their future financial security.

Fortunately, there are steps you can take to limit the impact of unwanted rising prices on your income.

Bear in mind that some assets are simply more vulnerable to inflation than others; namely any investment that pays a fixed income and/or offers a fixed capital return. Ask any bond investor - as interest rates rise, bond yields become less attractive.

In this sort of environment shares can perform better. And especially so if inflation is the consequence of rising demand, and not some sort of supply ‘shock’. We’re in that sort of situation now and it means that we could very well see companies paying out higher dividends as their profits rise.

This is not a failsafe solution though as shares don’t do so well when we get into historically high levels of inflation, so as always diversification is key.

Cash is a no-no, beyond the necessity of having some savings to hand for the proverbial rainy day, because it’s the first casualty of rising inflation, but adding in commodities, including gold, is a good way to diversify. You could also consider some investment in infrastructure and real estate, because both can benefit when the economy is strong.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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