Inflation Costs Pension Funds GBP56 billion

Inflation Costs Pension Funds £56 billion

Pensions consultants have warned inflation has added £56 billion onto company pension liabilities in the last year, threatening a rise in deficits.  Redington Partners, a pensions consultancy said a rise above 4 per cent in long-term inflation expectations would have “serious repercussions” for defined benefit schemes.  

As it stands, long-term interest rates are not rising fast enough to offset the rise in inflation expectations.  This is leading to liability soaring at a much faster rate than scheme assets and further widening deficits.

Our view

All we can do as advisers is make you aware that inflation will make final salary company pension schemes much more expensive.  However, inflation moves in cycles and this rise is only a temporary issue.  Inflation will fall again in around a year.

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