All eyes were on the inflation rate this week, after September's alarming jump to 5.2% in the consumer price inflation (CPI) index and 5.6% in the RPI (retail price index).

In October, CPI eased to 5% and RPI to 5.4%.

But inflation at these levels continues to strike hardest at the retired.

Dr Ros Altmann, director-general of over-50s group Saga, said: “Older people remain worst hit by inflation and pensioners in particular have witnessed a cumulative inflation rate of over 20% since the start of the credit crunch.”

For those living on fixed pensions in particular, every price rise means they will have less available to spend on other items. Although the state pension is now linked to rises in the earnings or prices, whichever is higher, the increase is capped at 2.5% – only half the actual rate of inflation.

People with private pensions now coming up to retirement are also being hit by steep falls in annuity rates. Inflation means their retirement incomes will be eroded even more in the future.

Only public sector employees, whose pensions are automatically index-linked, can be sure their incomes will be insulated against the increasing costs.

Public sector employees don’t realise how lucky they are in this regard, says one leading annuity adviser. Douglas Baillie, of comparemypension.com, says: “I don’t believe public sector workers really understand the true value of an index-linked pension which few private individuals can afford.”

The government wants to change the link for public sector pensions increases from the higher RPI to the lower CPI. Although not so generous, it will still mean that their pensions are partially protected from inflation.

Private sector employees who are, or were, members of company pension schemes may also benefit from some increases to their pensions when they retire. But the rules are complicated says David Trenner, technical director of Intelligent Pensions in Glasgow.

He explains: “It depends when you were paying into your company pension. With any part which was accumulated before 1997 there is no legal requirement for companies to increase pensions in payment. However, pensions built up between 1997 and 2005 are increased with RPI up to a maximum of 5%, while from 2005 onwards the cap was lowered to 2.5%.”

People with private pensions will normally have to decide for themselves whether their pension will increase once it starts or not. Most people opt for annuities which pay them a regular income when they reach retirement. It is possible to buy inflation-linked annuities, or annuities which rise by a fixed percentage each year, but they cost considerably more than conventional, level annuities.

A 65-year-old man with a pension fund worth £50,000, for example, could currently buy an average fixed-level pension of £3190 per annum, but the amount of inflation-linked pension he could buy with the same fund would be only £2075, more than £1000 less than the fixed pension, according to Moneyfacts.

The pension from the inflation-linked annuity will rise each year in line with RPI, but it will take at least 15 years for the payments to overtake the level annuity. Mr Trenner says: “If people can afford it, I believe they should take an inflation-linked annuity. The problem is that many people underestimate how long they are going to live.”

He points out that with many more pensioners reaching 100, an inflation-linked annuity could come into its own. But in practice most people take the highest pension when they retire.

Retirees should at least make sure that they are maximising the income from a level annuity by using a professional adviser to help them shop around for the best rates. If they have any kind of health problems, or they are smokers, or overweight, they could qualify for an enhanced annuity which provides an even better pension.

Or they could split their pension fund, using, say, half to buy a level annuity and the rest for an index-linked annuity. Other options are investment annuities, so-called “third way” annuities, which are taken out for limited periods of five years.

With limited-term annuities, offered by companies such as MetLife and Just Retirement, there is the possibility that the pensioner’s circumstances may have changed by the time another annuity is purchased.

There is a lot to consider when approaching retirement. It is the one time taking independent financial advice could be the best thing you ever do.