Pensioners are being urged to seek financial advice after Prudential found that inflation could cause them to lose nearly 60 per cent of their pension.

Prudential found that the average person retiring in 2011 expects an annual income of £16,600.

However, if that income remains fixed, in 20 years time it would be worth only £6,700, effectively a £10,000 pay cut.

If the current rate of inflation remains, people would need a retirement income of more than £40,000 to maintain their standard of living for 20 years.

Prudential says pension inflation is higher for retired people as they spend more of their income on goods such as food and fuel.

These are subject to the highest rates of inflation, causing it to be dubbed ‘Silver RPI’ by Age UK.

Vince Smith Hughes, head of business development at Prudential, said: “Pensioners on a fixed income are particularly vulnerable when it comes to rising living costs and our figures demonstrate the true extent to which Silver RPI impacts on the spending power of those in retirement.”

Michelle Mitchell, charity director of Age UK, said: “The sooner we all start to plan for retirement the better. Too many people have been devastated when they retire as the gap between expectations and the reality of what they will actually be receiving becomes a shocking reality.”