Four in five (80%) people are concerned about maintaining their current lifestyle in the face of rising inflation, with one in four (28%) have needed to divert money away from their savings due to the increasing cost of living. Nearly two thirds of millennials (62%) have less money left at the end of the month than six months ago.

Despite a slight drop in inflation to 2.6%1 in June, inflation has remained above the government's target since February, overtaking wage growth in March2, and these price rises are already starting to influence the way people manage their finances. That's according to new research from Aegon UK, which found that four in five (80%) people are now concerned they will no longer be able to maintain their current lifestyle, with 28% even redirecting money away from their regular savings to meet the increased cost of living.

Real wages fell by 0.5% year on year in the three months to May2, and households have started to feel the pinch. Around two thirds (63%) of those interviewed have already noticed an increase in the cost of their monthly shop in the last six months, with millennials among the most affected. Two thirds (62%) of those aged 18 to 30 report that rising prices have left them with less money at the end of the month than they had six months ago, and they are also far more likely to be diverting money away from savings. More than half (52%) of those aged 18-30 have had to reduce their monthly savings to help with the increased cost of day-to-day living.

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The findings also raised concerns that savers are too exposed to rising prices. More than two thirds (67%) of Brits say they have not taken any steps to review their savings and investments to protect themselves against the erosive effects of inflation. Bucking this trend, people aged between 31 and 40 are setting a good example, with three in five (63%) adjusting their financial decisions to insulate themselves against the macro-economic headwinds by reviewing their savings and investments.

However, those approaching retirement are worryingly ill prepared for rising inflation. Only a third (34%) of 51 to 60 year olds have considered how they'll need to protect their retirement income against the potential of more significant price rises. Of those that have already taken steps, nearly half (46%) had transferred savings from cash to stocks and shares, one in ten (10%) have taken out an inflation linked savings product, and 6% have taken out an inflation linked annuity.

Kate Smith, Head of Pensions at Aegon, commented:

"Rapidly rising prices are almost always bad news for consumers, particularly pensioners on a fixed income, who are clearly having to go through a bit of belt tightening at the moment. The problem is amplified by both low wages and low interest rates, which give people little opportunity to grow their savings to meet the growing cost burden. There are lots of options available for people that want to diversify their investments outside of rock bottom savings account, but it's important to plan ahead, and if dealing with significant amounts, consider seeking the input from a financial adviser.

"Many of the younger generation seem to be prioritising current lifestyle over long term savings ambitions, and there's nothing wrong with that in principle, but as inflation begins to bite it's important they don't start to see saving as an unaffordable luxury, and even consider sacrificing their workplace pension. By far the most effective means of saving is to do so early, and often, and there's a risk that reducing regular contributions becomes a habit that's hard to reverse."

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