Private sector defined benefit pension scheme members could lose £500 a year due to inflation caps

Private sector defined benefit pension scheme members could lose £500 a year due to inflation caps

19 Oct 2022

•    Most private sector defined benefit pensions will be increased next year based on the September inflation figures announced this morning
•    RPI hit 12.6% and CPI reached 10.1% as the UK continues to grapple with rising prices
•    Most of the 6 million members who are yet to retire will receive a full inflationary boost to their pensions
•    However, the 4.5 million members who have already retired will not, as any increase to their pension is likely to be capped
•    The level of these caps vary from scheme to scheme but are typically between 3%-5%, meaning that the average defined benefit pensioner could be missing out on annual income of £500, equating to around £8,000 over a lifetime.
 
Charlotte Jones, Senior Consultant at XPS Pensions Group, said: “Contrary to reports over the last couple of weeks, from a funding perspective most defined benefit pension schemes are doing well despite the market turmoil brought on by the mini budget. XPS’s DB:UK funding tracker estimates that schemes currently have over £160bn of surplus funds following the sharp rise in gilt yields seen in the past few weeks. 

“With schemes’ funding improving during a cost-of-living crisis, pensioners of defined benefit schemes may ask whether those excess funds could be used to help them pay their bills this winter. At XPS we’re seeing pension schemes looking at various options to support their members through this challenging period and especially to see if they can help those members that will see their retirement income fall in real terms.”