FTSE 100 firms are mulling discretionary pension hikes as soaring inflation threatens to outpace the rate of annual growth in payouts, according to a top pensions consultant.
Corporate pension schemes typically have some inflation protection baked in, but as inflation rates hit 6.2 per cent yesterday according to the Consumer Price Index, pensioners could be left with a sizeable hole in their spending power.
Bosses are now considering the highly unusual step to hike pensions to keep pace with inflation.
“We’re going to get a raft of pensioners who are going to get their letter with an explanation that rather than six or seven percent growth in line with inflation, it will only be three per cent,” Raj Mody, global head of retirement & pensions consulting at PwC, told City A.M.
“I spoke with two FTSE 100 companies this week who said they are looking at discretionary top ups if this rate of inflation continues.”
Mody said he has “seen a lot of different economic cycles” go through and the concept of discretionary increases certainly was “not on the cards for ages.”
Edd Collins, pension director at Willis Towers Watson, said consideration of discretionary hikes had increase in the past weeks with inflation continuing to surge.
“We’re certainly seeing a lot more interest and interest and consideration around discretionary increases.”
However he warned that the full impact may not be realised until 2023.
“A lot of schemes pay in line with inflation rates in September, so we may not see this really hit until next year.”