However, the majority of increases to members’ benefits will be based on short-term inflation rates published later in 2022 which are expected to continue to be into double digits, and retirement options may not reflect this higher level of inflation.
This may mean that a member of a defined benefit pension scheme choosing to retire in early 2023 could see a material increase in their pension compared to retiring at the end of 2022 due to their benefit receiving an additional inflationary increase in 2023. This may equate to a c.7%* difference and over £10,000 worth of extra pension income over a lifetime for the average pensioner.
Charlotte Jones, Senior Consultant at XPS Pensions Group, said: “What a difference a day makes, a member retiring on 1 January could receive an additional £10,000 over their lifetime compared to 31 December. As a result, at XPS we’re seeing a lot of Trustees reviewing the way that members’ benefits are calculated to ensure that no one loses out on these high inflationary increases. 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. As a result, we’re seeing many Trustees adjust retirement quotes temporarily to ensure that members don’t miss out on vital retirement income. We would recommend that all pension schemes take time to review the factors they have in place in the context of high inflation.”
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