The fall in inflation seen in February could be “good news” for reducing pension schemes' liability values, XPS Group has said.

The Office for National Statistics (ONS) confirmed that the Consumer Prices Index (CPI) rose by 2.8 per cent in the 12 months to February 2025, down from 3 per cent in the 12 months to January.

Commenting on the news, XPS Group chief investment officer, Simeon Willis, noted that while near-term inflation remains "well above" the Bank of England’s 2 per cent target, long-term inflation expectations have fallen over the past two months.

This shift has led to the real yield on UK government bonds above inflation reaching a 20-year “record high” of around 2 per cent, supporting the reduction in pension schemes' liability values.

“However, there is the potential for continued above-target near-term inflation to constrain the scope for interest rate cuts, hampering economic growth, which will hurt pension schemes in other ways, via their risky assets,” he added.

In addition to this, My Pension Expert policy director, Lily Megson, emphasised that the long-term impact of high inflation is still being felt, and many savers are finding their budgets remain stretched.

She also indicated that concerns about whether their pension savings will be enough to support a secure retirement are far from resolved.

“Britons need clear reassurance about the economic future and pathways to financial advice if they are to commit to long-term financial planning with confidence,” she said.

Megson argued that the Spring Statement must acknowledge the strain people continue to face, calling for a “clear, practical plan” to help people save adequately and protect their pension income.

“Anything less would be a failure to meet the moment – and retirement savers will pay the price,” she added.

However, Aegon pensions director, Steven Cameron, noted that the drop in inflation figure comes less than two weeks before state pensioners are set to receive a 4.1 per cent increase to their new or basic state pension, meaning they are on course for an above-inflation boost.

“The triple lock increases the state pension by the highest of year-on-year earnings growth for the previous May to July period, consumer price inflation as at the previous September, or a minimum of 2.5 per cent,” Cameron continued.

“There’s a considerable gap between the increase being set and it coming into payment the following April. But this year, the increase remains above the latest inflation figure, protecting pensioner purchasing power.”

However, he pointed out that those with earnings-related pensions on top of their basic state pension, (relating to the pre-April 2016 rules), or those who have topped up their state pension through additional National Insurance contributions, will see these elements increase by 1.7 per cent, in line with last September’s inflation rate.

AJ Bell head of financial analysis, Danni Hewson, commented: “In many cases, wage increases will help offset the price hikes hurtling our way, as will the uprating in pensions and benefits, though in most cases those extra pennies have probably already been spent.”

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