Thousands of people drawing pensions from some of Britain’s biggest insurers could soon suffer a drop in income, with the country’s most-watched inflation measure expected to go negative this week.

For the first time since February 1960, the retail prices index (RPI) is expected to be down on a year earlier, by an estimated 0.5%. In January it stood at just 0.1%, a far cry from the 5% hit in September.

Economists believe negative RPI readings will be recorded for the rest of the year, peaking with deflation of between 2.5% and 4% by September.

The Bank of England has cut interest rates to 0.5% from 5% in the past six months, driving mortgage costs lower. Falling oil prices, down to $45 a barrel from a record $140 last year, have also helped to push inflation into negative territory.

While people with annuities pegged to inflation could see their retirement income fall, those drawing the state pension will be big winners, because payments are based on RPI in September.

Most economists expect deflation to be short-lived, however, with many analysts suggesting that longer-term investors should prepare their portfolios for the return of inflation.

Here, we look at the winners and losers from falling prices.

PENSIONERS

Winners

State pension payments, which change at the start of each new tax year on April 6, are based on RPI the previous September, so pensioners will be 5% better off from next month, receiving £95.24 a week, up from £90.70.

They are, however, likely to get half that increase the following year. The government has committed to increasing the state pension by RPI or 2.5% a year — whichever is higher. Pensioners could receive just £2.38 a week more, at £97.62, come April 2010.

People with final-salary pensions could also be big winners. Most trust deeds which govern these schemes were written long before anyone contemplated the possibility of deflation. Some schemes have annual minimum increases in benefits, say 3%, regardless of RPI. These apply to retired members and those still accruing benefits. With other schemes, however, benefits rise in line with inflation up to a set limit.