Simeon Willis, Chief Investment Officer, XPS Pensions Group, commented: “Inflation at current levels can be very damaging to pensioner incomes in particular. Even where benefits are linked to inflation, annual inflation increases are often capped, for instance to 2.5%. This means that whilst inflation remains at this level, the real value of a pensioner’s pension is being substantially eroded. The general inflationary environment has been less of an issue for pension schemes and employers. Long term inflation expectations, which more heavily influence liability values, have been relatively stable. Furthermore, for pension schemes with high levels of hedging, capped benefit increases can lead assets to outperform, as inflation hedging assets are usually uncapped.”
Becky O’Connor, Director of Public Affairs of PensionBee, commented: “High inflation is the new normal. With interest rates expected to rise again tomorrow, the hope is that inflation responds and falls, soon. In the meantime, people continue to cope, trimming costs where they can, budgeting and prioritising. For older people, it remains difficult to plan retirement, as inflation erodes the value of pension pots. Older borrowers who are hoping to pay off their mortgages face an uphill struggle to do so, with higher repayments creating a challenge for some. For workers who are saving into their pensions, it’s important to keep at it. Stopping contributions to cope with ‘the now’ only stores up problems for the future.”
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