Inflation figures begin to stabilise

Inflation figures begin to stabilise

18 Jan 2023

• December RPI was 13.4% and CPI was 10.5% this morning as UK inflation levels begin to stabilise.
• 2022 saw inflation rates rise above average pension increase caps for schemes for the first time in 30 years, which are typically set at 5% or below for the majority of pensioners.
• As a result, defined benefit* pensioners are missing out on £500 a year of income due to the capping of their inflationary increases in 2022, equating to a real income loss of over £10,000 over a lifetime for someone at state pension age.
• The Prime Minister’s commitment to halve inflation this year will likely not be enough to push inflation below the typical pension increase cap next year, which could further reduce defined benefit* pensioners’ real income by an additional £100 per year, equating to £2,000 over a lifetime for someone currently at state pension age.

Charlotte Jones, Senior Consultant at XPS Pensions Group, said: “While inflation is starting to slow, even half the current rate of inflation will see UK pensioners potentially miss out on full inflationary increases to their benefits due to the increase caps in place for the second year in a row. The implications are especially significant for members looking to retire early in this high inflationary environment, as they potentially swap full inflationary increases before retirement for capped increases after retirement. With the level of complexity involved, many pensioners will need support to fully understand the impact this high inflation environment is having on their benefits.”

* UK defined benefit private sector pension schemes