The value of UK pension scheme’s assets are rising ahead of liabilities as inflation looks set to take a chunk out of pensioners’ spending power, fresh data has revealed.
The surplus in UK pensions – the difference in the value of assets against a scheme’s liabilities – jumped to £270bn in April spurred by rampant inflation, according to data from PwC’s Adjusted Funding Index, which incorporates strategic changes likely to be made by pension funds.
Caps set by most UK pension schemes place a limit on how much firms can hike pension payouts in line with inflation however, despite the rising value of assets.
PwC analysts told City A.M. the surplus will continue to grow with very few hikes on pension payments on the horizon.
“The combination of the lag problem, [Pension increases being based on historic levels of inflation] along with the cap on increases in most schemes, could mean pensioners feel the shortfall impact for several years,” Raj Mody, global head of pensions at PwC told City A.M.
“I can well imagine this will be a live topic for thousands of pension schemes trustee boards.”
Around nine in 10 schemes cap how much inflation they pass into pension increases, and Mody warned it could be up to a year before pensioners feel a lift in payments.
“Pension increases in defined benefit schemes are also typically only granted once a year, with reference to historic levels of inflation,” Mody said.
“Pensioners may well need to wait another year until their benefits catch up with the current inflation rates we’re seeing today.”
It comes after City A.M. revealed that FTSE 100 pension bosses are exploring unprecedented discretionary pensions hikes to ensure that pensioners are not left out of pocket.