The Office for National Statistics has announced that the Consumer Prices Index rose by 3 per cent in the 12 months to February 2026, unchanged from the 3 per cent figure for January.
However, this does not include data from the ongoing war in Iran, which is expected to spike inflation figures for the month of March and has already impacted DB portfolios.
Adam Gillespie, partner at XPS Group, says: “Today’s CPI figure will grab the headlines, but for DB pension schemes far more significant market impacts have already happened. Since the Iran conflict began on 28 February, it is the UK bond market’s reaction, not today’s inflation number, that has driven the bigger shift in funding positions.”
XPS estimates that liabilities on a long-term funding basis have fallen by approximately 5 per cent since 28 February, equivalent to around £50bn.
The consultancy group adds that higher inflation will prove challenging for many pension savers. XPS Group head of DC investment Mark Searle says: “Younger members have enjoyed strong global equity returns over the last three years, but a period of persistently higher inflation would make retirement targets harder to achieve without changes to contributions or investment strategy.
“For older savers already drawing an income, higher inflation means larger withdrawals are needed just to maintain purchasing power. Combined with the elevated market volatility we’re seeing, this significantly increases the risk of running down drawdown pots too quickly and brings into focus the risk DC retirees face with pound cost ravaging.”
Based on the earnings growth element of the triple lock and the latest inflation figures, the state pension will increase by 4.8 per cent from 6 April, meaning state pensioners are currently in line for an above-inflation boost to their income.
However, this increase means the state pension will be just £23 under the personal allowance limit (£12,570), at which point it would become liable to income tax.
Kate Smith, head of pensions at Aegon, said: “While many pensioners already pay income tax because of money from other sources, including private pensions, there has been concern regarding the impact of this on vulnerable pensioners, particularly those who rely solely on the state pension.”
Chancellor of the Exchequer Rachel Reeves has previously pledged that no-one whose sole income is derived from state pension will have to pay income tax during this Parliament.
