Millions of pensioners on “final-salary” pension schemes are set to lose out on thousands of pounds each, due to rampant inflation outstripping the cap on increases.
Inflation is set to cost pensioners an average of £400 this year and £7,000 over their lifetimes, as soaring price rises eat into people pension pots.
Almost all “defined benefit” pension plans cap increases at 5 per cent each year, meaning high rates inflation vastly outstrip any capped increases in benefits.
Thus, as inflation is set to hit heights of 9 to 10 per cent this year, those on capped pensions schemes are set to see their pension payouts drop in real terms.
The caps mean that around 4.2m former-private sector workers are set to lose money, on drawing pensions from any of around 5,000 traditional defined benefit schemes.
By contrast, around five million ex-civil servants and other former public sector workers on uncapped defined benefit pension plans will see their pensions increase at the full rate of inflation, meaning they will not lose out.
Pensioners on more modern defined contribution schemes are also set to be even worse hit than those on defined benefit schemes.