High inflation and caps on increases to defined benefit (DB) pension benefits could mean pensioners will be £10,000 worse off over their lifetime if they decide to take early retirement, analysis from XPS Pensions Group has revealed.

This analysis comes after CPI reached 9 per cent in earlier this month and amid inflationary pressures that have persisted for the past few months.

XPS noted that early retirement pensions are reduced to reflect the longer period of payment, typically by around 4 per cent a year.

In addition, due to differences in the way inflationary caps apply before and after retirement, deferred members who have not yet retired from DB private sector pension schemes may benefit from delaying early retirement decisions, according to the consultancy.

Additional analysis from XPS Pensions Group’s DB:UK Funding Watch showed that if inflation reaches 10 per cent for an average member, the effects of the caps from delaying an early retirement decision by one year could be worth £400 a year.

XPS noted that this could equate to members being £10,000 better off over their lifetime.

XPS Pensions Group senior consultant, Charlotte Jones, commented: “As inflation continues to bite, we could see more pensioners taking the difficult decision to delay their retirement in order to boost their future income in this high inflationary environment.

“This could have a beneficial impact on their pension income, as the effects of caps on pension increases tend to be more significant once pensions are in payment.

“Our calculations show that the effects of the caps could improve the average pension scheme member’s income by £400 each year if they can afford to delay taking their pension for a year.”

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