Pension schemes were hit by a £46bn increase in liabilities in September as rising inflation put downward pressure on long-term interest rates, according to XPS Pensions Group’s DB: UK tracker.
UK prices rose to 3.2 per cent over the year to 31 August 2021, their highest annual increase since 2012. Pension schemes will be impacted as rising long-term inflation will increase member benefit and pension liabilities. Different schemes will be influenced in different ways, with hedged schemes better protected while schemes with limited inflation protection taking more of a hit.
XPS Pensions Group senior consultant Felix Currell says: “The speed of the recovery of the supply-side of the global economy and the impact of further stimulus in the US will be key factors in the ongoing performance of equity markets. Pension schemes will be concerned about the ability of markets to keep pace if inflation reaches very high levels, particularly if interest rates are raised early to combat prevailing inflationary fears. Real assets with contractual inflation linkage may therefore prove to be an attractive option for schemes concerned about these negative effects on their growth portfolio.”
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