The small level of increases awarded to those on basic state pension has already prompted outrage from some commentators but members of many occupational pension schemes will get no increase at all next year.
That is because many schemes base their increase on the September Retail Price Index (“RPI”) value. Figures published today by the Office for National Statistics reveal deflation of 1.4% over the year from September 2008 to September 2009.
So pensions are likely to stay at their current level for many pensioners. But whilst this sounds like a possible opportunity for pension schemes to save money, the reverse may well be true, as income from inflation linked UK government bonds, often held by pension schemes to back the liabilities for pensions in payment, falls in a deflationary era.
Speaking on today's RPI figures, Joanne Livingstone, Technical Director at Punter Southall, said:
"The result of the negative inflation figure published today could be unhappy members and increased deficits.”
Ends
For more information or to speak with Punter Southall, please contact:
Penrose Financial
André Flemmings
020 7786 4811
London Employer Masterclass (September)
