Pensions - Articles - Pension schemes should not take low inflation for granted

 Inflation generally has two impacts on pension schemes: long-term future inflation expectations affect the value of the balance sheet liabilities, while the actual inflation experienced each year directly and immediately increases benefit payments.

 “In recent years, schemes have benefitted from low actual inflation. This has often led to reductions in their liabilities relative to the assumptions made. As Governor Mark Carney has said though, the impact of Brexit on the value of sterling and import prices means we may now have a period of higher inflation working its way through the UK economy.

 “While schemes are often protected, to some extent, by caps on pension increases, today’s figures come as a timely reminder to pension scheme trustees not to take low inflation for granted. Set appropriate assumptions and ensure the investment strategy provides an appropriate level of protection against rising inflation.