Why the spending power of your money is under threat
So-called stealth taxes have contributed to the UK tax burden hitting its highest level since the Second World War. Frozen tax thresholds and reduced allowances are pulling more of us into paying more tax, with working people and pensioners all feeling the pain.
But there’s another threat to your wealth that can creep up without you noticing. Often called the silent tax, inflation can quietly erode the spending power of your money, even when your savings and investments appear to be growing. Instead of an unwelcome tax bill, inflation steadily reduces the real value of your money, meaning that every pound buys less over time.
It is one of the most persistent and underestimated threats to long-term financial security.
How can we measure the impact of inflation over the longer term?
If you divide your forecast inflation rate into 72, that will give you an idea of how long it would take to halve the spending power of your money.
Although it peaked at over 11% in 2022 – a 41-year high - annual inflation has averaged 2.8% for the last 15 years¹. At that rate, based on this rule, the real value of your money would halve in 25 years.
It sounds like a long time, but if you are retired or approaching retirement, this is particularly important. Retirement can last 20, 30 or even more years, so protecting the long-term value of your money matters just as much as protecting the balance itself.
Practical steps to protect your wealth from inflation
1. Hold cash for short-term needs
It’s easy to fall into the trap of holding a lot of your wealth in cash, because it feels safe and it’s easily accessible. Cash is the right home for your short-term or emergency money needs. But keeping too much in low-paying savings accounts exposes more of your wealth to the risk of inflation.
2. Plan your investments
To protect wealth from inflation you need to invest in assets that can outpace rising prices. Equities, property, bonds, infrastructure and commodities are some of the investment options that historically keep pace with or exceed inflation. Combining these investments with tax-efficient wrappers such as ISAs and pensions can also help your money to grow faster in real terms. Your Financial Adviser can explain all these options and how they can help you achieve your financial goals.
3. Spread your money
Investing comes with risk, which is why diversification is so important. Having a portfolio that is well spread across different assets helps protect and grow your wealth.
Protecting your wealth from inflation
The right approach will be different for everyone and will depend on your goals, timescales and attitude to risk.
Your Financial Adviser can help you review how your savings and investments are working together and whether your plans remain on track to help maintain your spending power over the long term.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both.
¹ Bank of England Inflation Calculator
THE VALUE OF INVESTMENTS AND ANY INCOME FROM THEM CAN FALL AS WELL AS RISE AND YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
HM REVENUE AND CUSTOMS PRACTICE AND THE LAW RELATING TO TAXATION ARE COMPLEX AND SUBJECT TO INDIVIDUAL CIRCUMSTANCES AND CHANGES WHICH CANNOT BE FORESEEN.
Newcastle Building Society introduces to Newcastle Financial Advisers Limited for advice on investments, pensions, life and protection insurance, and inheritance tax planning. Aspects of inheritance tax planning are not regulated by the Prudential Regulation Authority nor the Financial Conduct Authority. Newcastle Financial Advisers is a trade name of Newcastle Financial Advisers Limited which is an appointed representative of The Openwork Partnership a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Approved by The Openwork Partnership on 16/09/2026.