Millions of pensioners who believe their incomes are protected from inflation could be in for a rude awakening in the coming months
Millions of pensioners who believe their incomes are protected from inflation could be in for a rude awakening in the coming months. At least ten million people are members of gold-plated defined benefit pension schemes that are designed to offer protection from inflation.
多年, their monthly payments have kept up with the cost of living. But many of these schemes have a cap on their inflation protection, which is now being breached as the cost of living surges. They usually match inflation rises up to three or five per cent, but no higher.
With inflation soaring at seven per cent and expected to hit ten per cent later this year, millions could see the spending power of their incomes dwindle by hundreds of pounds in real terms.
Out of pocket: Pensioners will be hit by soaring inflation during the coming months
多于 4.5 million people who are already receiving their pension will feel the impact immediately and a further 4.9 million members will notice it when they start to draw their pension in future.
凯英格拉姆, a chartered financial planner at Ingram Insights, 警告: ‘It is very rare for pensions in the private sector to be fully inflation linked.
‘While inflation was low, pensioners did not have to worry. 但, as inflation rises many will be in for a shock and may need to rethink their spending plans.’
If inflation hits ten per cent, retirees with inflation protection capped at five per cent will miss out on £7,000 over their lifetimes, research from actuarial consultants XPS shows. This is the equivalent of £400 less income every year.
If inflation remains high for some time, even savers with the most generous pension incomes will feel the effects. Tom Selby, head of research policy at wealth platform AJ Bell, 说: ‘If inflation averages at seven per cent, someone with a pension income of £10,000 and capped at five per cent would have the purchasing power of just £9,100 after five years.’
Some of the country’s biggest final salary pension schemes are affected. 例如, the BT Pension Scheme – the largest company pension scheme in the UK – raises payments for some members in line with the Retail Price Index (一种通货膨胀措施，包括自住业主的住房成本) rate of inflation – but only up to five per cent.
The pension scheme of RELX– formerly Reed Elsevier, the retirement plan for staff at one of the largest publishers in the UK – also caps at this level. The RPI hit nine per cent last month and looks set to keep rising.
Savers with public sector pensions are not suffering the same fate.
‘Most public sector pension schemes increase every year by the full rate of Consumer Prices Index inflation, which is really the gold standard,’ says Hemal Popat, partner at actuarial consultants Mercer. The state pension is also guaranteed to rise by at least the level of CPI inflation.
The rate used to calculate the increase every April is the rate of inflation in the previous September. With inflation predicted to hit close to ten per cent in September, pensioners could be in line for one of the largest ever percentage increases to the state pension next year. 然而, pensioners missed out on a higher state pension rise this year after the Government broke the triple lock, which guarantees a rise by the highest of inflation, wage growth or 2.5 百分. The state pension rose by the 3.1 per cent rate of inflation rather than wage growth, which had hit 8.8 百分.
Retirees living on an annuity face an even greater struggle. 只是 12 per cent of annuities purchased since 2015 offer any inflation protection at all. Most annuity providers – including Canada Life, Aviva, Just and Scottish Widows – offer annuities that rise fully or partially with inflation.
然而, few savers have bought them in recent years as they are expensive.