Negative inflation could add GBP5bn-plus funding pressure on UK DB pensions, says LCP
Defined benefit pension schemes in the UK could face an extra GBP5 billion of funding pressure if the level of inflation turns negative in coming months, according to an analysis by pension consultancy LCP.
Negative inflation presents a problem for pension schemes since most cannot reduce existing pension payments, even if inflation is negative, and the value of those pension payments goes up relative to the rest of the economy.
In April, the UK inflation rate had already tumbled to 0.8 per cent, over one per cent off the Bank of England’s two per cent inflation target. A further fall is expected when May’s figures are published at the end of this week.