Inflation squeeze - pensioners brace for a second energy shock

Inflation squeeze - pensioners brace for a second energy shock

22 Apr 2026

Inflation rose to 3.3% in March according to figures released today by the Office of National Statistics, driven by soaring fuel and energy costs.

Adam Gillespie, Partner at XPS Group commented: “Whilst many have already felt the impact of rising inflation at the petrol pump, the bigger worry for the UK economy - and for individuals - is what comes next. Energy bills are set to rise further from July, and food prices could follow.

For Defined Benefit pension members in particular, the concern is a further sustained period of above-cap inflation. As many schemes limit some pension increases to either 2.5% or 3.0%, any prolonged CPI overshoot translates into real-terms losses. These are members who have only just emerged from the inflation shock of the Ukraine energy crisis, so another period of elevated inflation will feel especially painful.

For Defined Contribution savers, the picture is more mixed. Higher than expected inflation can weigh on gilts and other assets in the short term, but over longer periods the outlook is less certain underlining the importance of diversification. And higher inflation shines a light on a bigger issue in the UK: whether DC strategies are really sufficient to protect living standards. The risks members face in retirement are not just about pot size - features such as inflation protection are a necessity.

Today's figure also makes a Bank of England rate cut in April look almost unthinkable. The MPC had already signalled that CPI would stay above 3% for most of this year, but that was before the indirect effects of higher energy costs fed through to food and services. Rate cuts are now expected to be a 2027 story, not a 2026 story. And while aggregate DB funding remains resilient – with our research showing the surplus of UK DB schemes still above £200bn, supported by strong liability hedging positions – trustees and sponsors should not be complacent. Higher volatility of inflation and interest rates can blow protection off course precisely when it is needed most.”