Concerns around rising inflation rates have persisted, despite a slight fall over the past month to 9.9 per cent, after industry research revealed that inflation caps could see the average defined benefit (DB) member miss out on around £25,000 at retirement.
The Office for National Statistics confirmed today (14 September) that the annual Consumer Price Index fell from 10.1 per cent to 9.9 per cent, while the Retail Price Index (RPI) had reached 12.3 per cent.
Despite the slight fall, Canada Life technical director, Andrew Tully, warned that today’s inflation numbers will do “little to reassure households across the country who are struggling to come to terms with increased prices and higher bills”.
“It has to be said that the immediate outlook looks bleak, with The Bank of England predicting the peak of inflation to come later this year at around 13 per cent," he continued.
"The peak, when it does come, will offer little respite when the tail of inflation is predicted to last well into next year and not come close to the target of around 2 per cent for several years."
In addition to this, XPS Pensions group pointed out that, due to caps on inflationary pension increases, most pensioners will not see a corresponding rise in their annual pension, with caps of around 5 per cent, or lower in some cases, expected to bite.
As a result, XPS estimated that the average pensioner in a private sector defined benefit scheme will miss out on around £1,200 p.a. of income due to pension increase caps biting over the next 2 years.
This would equate to around £25,000 of missed income over a lifetime for a pensioner aged 66, the current state pension age, due to current high levels of inflation.
XPS Pensions Group actuary, Tom Birkin, commented: “For current pensioners, sustained periods of high inflation will compound the effects of pensions not keeping pace with rising prices.”
“Pension schemes should explore options to support their members through this challenging period.
"Those who are able should consider whether they can provide financial support to their members, via additional increases to pensions above the caps in place.”
However, Tully suggested that "there will be some positive news in the coming months for retirees", as it is "highly likely the state pension is on track to increase by a record amount in April 2023".
Indeed, Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, said that pensioners can expect a “significant pension boost” next year, as long as the government keeps its pledge to keep the triple lock.
“Yesterday’s wage data put average wage growth at 5.5 per cent so pensioners are already in line for a record-breaking increase, albeit one that is well below inflation. If the link to CPI remains, then we could see pensioners on a full new state pension get more than £200 per week," she continued.
“Last year’s 3.1 per cent increase was no match for soaring inflation and has left many pensioners struggling and so a more generous increase will be welcomed.
“However, any such increase will not kick in until April which feels a very long way away right now for those struggling to make ends meet."
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