Private sector DB pensioners will see their income decline in real terms for the second successive year, as a result of the continued high inflation levels and the caps applied to limited increases in members’ pension benefits.
XPS Pensions Group says these caps typically range from between 2.5 per cent and 5 per cent. Figures published today by the Office of National Statistics show inflation in September was running at 6.7 per cent, according to Consumer Price Index and 8.9 per cent if the Retail Price Index (RPI) is taken into account.
XPS says this will mean another year of real losses for the majority of the 4 million plus pensioners in receipt of DB benefits. Although the impacts will vary, depending on the cap in place, XPS estimates that an average defined benefit pensioner could miss out on around .£300 a year — equivalent to around £5,000 over the rest of their lifetime.
XPS Pensions Group consultant Henry Shore says: “With this morning’s announcement that the annual rate of CPI inflation has remained unchanged over September, the key takeaway is one of short-term inflation remaining high and contributing to the cost of living crisis.
“XPS’s DB:UK funding tracker estimates that schemes currently have over £170bn of surplus funds on a low-risk basis. Consequently, some schemes are exploring the possibility of providing discretionary pension increases to support members that will see a second consecutive year of real falls in their retirement incomes.
“This also feeds into the ongoing debate on the Mansion House reforms and how changes to legislation could enable more flexible use of surpluses.”
