Higher inflation 'helping to ease burden on pension schemes'

01 November 2007
Higher rates of inflation could help to significantly reduce the cost of benefits for defined benefit pension schemes, it has been claimed.

According to Aon Consulting, such schemes tend to choose investments that linked with inflation, while the benefits they pay out are not, the Press Association reports.

Marcus Hurd, senior consultant and actuary the firm, said that most pension schemes use the retail price index to measure inflation, which increased by approximately four per cent last year.

"This environment of higher inflation is easing the burden on UK pension schemes, because many schemes benefit from broadly inflation-related investment returns while paying out benefits that are not fully linked to inflation," he remarked.

In related news, Madeline Forrester, head of UK distribution at Threadneedle, recently suggested that defined benefit pension schemes were likely to continue being a "significant" part of pensions provision.

Such pensions are "more likely" to remain in place in employees are able to recognise the "true value" of the benefits they offer, she added.

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