Pensions - Articles - Impact of inflation on company pension schemes


 Clive Fortes, Partner, Hymans Robertson, comments:

 “Today’s confirmation that inflation remains stubbornly high is another red flag for pension schemes after last week’s QE announcement. The typical FTSE 350 company has been allowing for RPI inflation to run at 3.5% p.a. and CPI at 2.8% p.a.. If RPI persisted at over 5%, FTSE 350 companies would need to find an extra £7bn to meet the higher costs.

 “Fortunately, markets are predicting inflation falling over the longer-term. Prices of long-dated inflation-linked investments have been coming down rapidly in the last month. Long-dated inflation is currently priced a little over 3% which is the lowest since the financial turmoil of early 2009 and much lower than the current 5.6%. Lower long-term inflation alone could shrink FTSE350 pensions deficits by around £25bn, but other financial pressures like higher corporate bond yields will dampen the benefit under IAS19.

 “Looking ahead, companies may be able to hedge their pension inflation risks by capitalising on some attractive opportunities. Today’s high short-term inflation is expected to drift lower through 2012. Long-dated inflation should have this prices in already, but market sentiment is hard to predict given uncertainties over economic growth and the political solution for the Eurozone. One thing is certain, if hedging inflation does get cheaper there will be a rush of companies and pension schemes looking to capture the opportunity and only those who are ready and act quickly will get their hedging done.”
  

Back to Index


Similar News to this Story

Launch of the new Pensions Commission
Standard Life, Aegon, Aviva, Legal and General and PMI comment on the launch of the new Pensions Commission
Retirement confidence dips for 50 somethings
New research from Aegon reveals that only 33% of Britons aged 50–59 feel confident about retiring comfortably, the lowest of any age group. This midli
Pension Commission must deliver bold reforms
Comments from Kirsty Anderson, retirement specialist at Quilter on the DWP’s plan to revive the Pension Commission, including auto-enrolment reform an

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.