Trustees juggle payouts as inflation spikes

August 19, 2022

The UK's annual inflation hit 10.1% in July

Trustees are increasingly being tasked with reviewing benefits calculations for members, as double-digit CPI inflation erodes the value of savings.��

Direct Benefit (DB) UK Funding Watch recently revealed UK defined benefit long-term liabilities had decreased over the last three months, by approximately �100bn as long-term inflation expectations fell.��

Read Minerva's previous coverage of UK pensions:

https://www.old.manifest.co.uk/uk-pensions-to-disclose-climate-alignment-measures/

Inflation continues to impact a pension�s liabilities, with current levels driving up benefits.  

A drop in long-term inflation expectations meant funding levels were marginally improved over July, despite a meagre fall in gilt yields.? 

DB UK Funding Watch highlighted that the majority of benefit increases would be based on short-term inflation rates published in the latter half of 2022, and expected to remain in double digits, meaning DB members retiring in early 2023 could see a material increase in their pension compared to those retiring at the end of this year.��

Charlotte Jones, XPS Pensions Group senior consultant, told Pensions Age that �a lot of trustees� were reviewing the way members� benefits are calculated so losses incurred from higher inflation were limited. 

�For example, early retirement factors, which reduce a member�s pension on early retirement to allow for the pension being paid for longer, may not offer fair value to members in this current high inflationary environment,� she said 
 
�As a result, we are seeing many trustees adjust retirement quotes temporarily to ensure that members don�t miss out on vital retirement income.� 

The Office for National Statistics (ONS) confirmed on Wednesday (17 August) that annual inflation had hit 10.1% in July, up from 9.4% in June. 

Interactive investor head of pensions and savings, Becky O�Connor, told Pensions Age that as the amount withdrawn from a pension increases from �5,000 a year to �5,500, to cover price rises of 10%, consumer pensions could run out two years before expected, at age 83 rather than age 85.�