Industry experts have raised concerns over the impact of rising inflation on pensioners and pension schemes, after the latest figures from the Office for National Statistics revealed a jump from 4.2 per cent in October to 5.1 per cent in November.

This is the highest level that the Consumer Price Index (CPI) has reached in over a decade, and has already met the peak level previously forecast by the Bank of England for the Spring of 2022.

Royal London consumer finance specialist, Sarah Pennels, suggested that the surge "couldn't come at a worst time for consumers", warning that "interest rates on savings accounts have some way to go to catch up".

“Concern among those on fixed incomes, like pensioners, will also be mounting," she continued.

"The suspension of the triple lock means they are in line for an increase of 3.1 per cent in their state pension – or an extra £5.55 a week - next April. Today’s figures make that look less and less generous.”

The government previously confirmed that the state pension would increase by 3.1 per cent in April, after it temporarily suspended the triple lock in light of the impact of the pandemic.

However, industry experts have warned that, amid the continued increases in inflation, this planned increase could equate to a real cut in living standards of 2 per cent.

In light of this, LCP partner, Steve Webb, has called on the government to re-think the 3.1 per cent state pension increase, warning that 12 million pensioners could otherwise face "a significant squeeze on their living standards next year".

"Not only will state pension payments fall in real terms, but income from private pensions will be squeezed, and inflation will eat away at the value of savings held by pensioners in cash ISAs and bank accounts," he continued.

"The government has shown that it can change Universal Credit rates at short notice when it wants to, and it will now come under pressure to re-think the modest state pension increase it had planned for April 2022”.

More broadly, the rising inflation is expected to erode the spending power of savings, as Aegon pension director, Steven Cameron, noted that a £1,000 present put into savings last Christmas would have a purchasing power today of £853, effectively 'giving away' £47.

"Individuals will be hoping that such high price rises are not sustained over the long-term to avoid the damaging effects of inflation being compounded," he said.

"Millions of people are already feeling the squeeze in the cost of living, particularly during a festive period when disposable incomes are often at their most stretched.

There are also concerns over the impact on pension schemes themselves, as Cardano client portfolio manager, Nigel Sillis, warned that pension funds are paying more to hedge their inflation risks today than they have been at any time in the past 10 years.

He explained: "It remains to be seen how ‘temporary’ the present raft of inflation-stoking supply disruptions are; how current trends may be aggravated by Omicron and, beyond that, we have not yet seen the full effects of higher energy prices upon consumer prices more generally.

"There are still upside risks. Amidst uncertainty, pension funds should aim to fully hedge.

"However, schemes that use inflation sensitive assets as part of their growth strategies might find better value in Europe or the US; whilst inflation is high in these markets too, valuations are not quite as daunting as those found in the UK."

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