With increases in long-term inflation assumptions adding £140bn to liabilities of UK DB schemes since England’s final Covid lockdown rules were removed on 19 July 2021, according to an analysis from XPS Pensions Group’s DB:UK Funding Watch.
With inflation hitting heights of over 5% for 3 consecutive months, increases on pensions, which are typically capped at 5% pa, have started to lag behind price inflation, which will be felt by pension scheme members who continue to be squeezed by the rising cost of living.
Tom Birkin, Actuarial Consultant, XPS Pensions Group, commented: “The impact of soaring inflation has been felt right across the pensions industry, with rising inflation expectations adding to schemes’ liabilities and creating challenges for Trustees as they work toward long-term funding targets. It’s not all bad news for pension schemes, however, as the Bank of England’s recently announced hike in interest rates will have had a positive impact on liabilities and will work to counteract inflationary pressures to some extent.”
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