Further Inflation Increases May Benefit FTSE 100 Pension Schemes

According to research by technology provider PensionsFirst, further increases in inflation may actually prove beneficial to FTSE 100 pension schemes. The research suggests that increases in inflation are costly for FTSE 100 schemes only up to a level of, on average, 1.4% above the current expected market rates. Inflation increases beyond this level – the so-called ‘tipping point’ – should result in improved funding levels, as caps on pension increases to members come into play but asset values continue to rise.

Office of National Statistics (ONS) figures released today show the Retail Price Index (RPI) rate of inflation remained at 5.2% in May.

“Since the early 1990s inflation levels have remained below the cap levels associated with most pensions, and increases in liabilities as a result of higher inflation have not been matched by increases in overall asset values,” said Matthew Furniss, an assistant vice president (AVP) at PensionsFirst. “Inflation increases to date have therefore worsened funding positions for the FTSE 100. However, given the ONS inflation figures released today showing that inflation remains above the cap for most pension increases of 5%, we are not far away from the point at which increases in inflation and inflation expectations should start to reduce rather than increase deficits.”


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