Inflation: the quiet force behind every figure on this site

Inflation means prices rise over time, so each pound buys a little less than it did. You don't notice it day to day — but over a 20 to 30 year retirement it can do more damage to your standard of living than almost any other single factor. Here's what it's doing now, what it does over the long run, and why every tool on this site shows results in today's money.

Where inflation is now

UK inflation, measured by the Consumer Prices Index (CPI), was 2.6% in June 2026 — easing back towards the Bank of England's 2% target, though services prices and the older RPI measure are still running higher. It's been a rollercoaster: inflation peaked at 11.1% in October 2022 — the highest in four decades, driven by the energy shock after Russia's invasion of Ukraine — fell back to target by mid-2024, rose above it again through 2025, and is now cooling. The lesson for a retirement plan isn't today's number; it's that inflation is volatile and unpredictable, so a plan needs to survive years when it's high, not just the calm ones.

CPI, CPIH and RPI: why you'll see different numbers

You'll often see inflation quoted three ways, and they rarely agree. CPI — the Consumer Prices Index — is the headline figure: the Bank of England's 2% target, and the inflation measure used in the State Pension triple lock (which raises the pension by the highest of CPI, earnings growth or 2.5%). CPIH — the Consumer Prices Index including owner-occupiers' housing costs — is the preferred measure of the Office for National Statistics (ONS): the same basket plus the cost of owning a home, for a fuller picture of household costs. RPI, the Retail Prices Index, is the oldest measure and usually the highest; it's being reformed to align with CPIH from 2030, but it still governs things retirees care about — index-linked gilts, rail fares, and the annual rises on some company and final-salary pensions. Which measure your income tracks can matter, so it's worth knowing which applies to you.

What inflation really does over a retirement

The damage is slow, which is exactly why it's dangerous — it compounds quietly in the background. A handy shortcut is the "rule of 72": divide 72 by the inflation rate to see roughly how many years it takes for prices to double. At 3%, that's about 24 years.

Why it can hit retirees harder

The headline CPI reflects a typical household's spending. Older households aren't typical: they tend to spend a larger share of their money on energy, food and care — the very things that have risen fastest in recent years. So the inflation rate a retiree actually experiences can run above the official figure. It's worth keeping that in mind when you pick an assumption: the national number may understate your own cost of living.

What's protected, and what's exposed

Not everything erodes equally. Your State Pension is inflation-protected by the triple lock, which is one of its most valuable features. Some annuities and certain government bonds (index-linked gilts) are designed to rise with inflation too. But a level annuity — one that pays a fixed amount for life — is quietly halved in real value over a long retirement at 3%, which is why the higher starting income it offers can be a false economy. Cash is the most exposed of all: money in an account paying less than inflation loses purchasing power every year even as the balance on the statement climbs — the main reason it's worth holding some investments for the long term alongside cash (see our cash vs investments guide).

Why we show figures in "today's money"

A projection saying your pot will be worth £600,000 in 25 years sounds reassuring, but on its own it tells you little — you'd have to work out in your head what £600,000 will actually buy after decades of rising prices. Showing the figure in today's terms instead — say, £280,000 — answers the question you really care about: what would that be worth if you had it in your hand now?

Under the bonnet, every calculator here uses a "real return" — your expected growth rate minus your assumed inflation rate. If your investments are assumed to grow at 6% and inflation is 3%, your money is really only getting about 3% better off in terms of what it can buy. Spending and withdrawals are then held at today's level rather than inflated year by year. The two approaches are mathematically equivalent, but working in real terms keeps every number on the page in language you can intuitively grasp.

Your assumed rate matters

Small differences in the inflation assumption compound into large ones over a long retirement. We default to 3% across the tools — a cautious middle ground, a little above the Bank's 2% target to reflect how often reality has overshot it — but you can change it on the Drawdown Tool to see how sensitive your plan is. Nudging it from 3% to 4% and watching how much sooner the money runs out is one of the most useful stress-tests you can run.

As with everything here, these are illustrative assumptions, not guarantees — future inflation is genuinely unknowable. If inflation risk is a real concern for you, a regulated independent adviser can talk through strategies designed specifically to guard against it, such as index-linked gilts or a higher allocation to equities.