Inflation rises will see pensions increase next year

Many members of final salary pension schemes can expect to see their pensions increase by around 5% next year after it was announced that both the consumer prices index (CPI) and the retail prices index (RPI) topped this level.

The CPI measure of inflation for September stood at 5.2%, up from 4.5% in August. RPI was at 5.6% in September. This undermines the government’s switch to base statutory pension increases on changes to CPI rather than RPI.

Sarah Brown, head of inflation research at Punter Southall, said: “With both RPI and CPI exceeding the 5% cap on statutory pension increases in payment, pensioners can be forgiven for wondering what the fuss was about since the switch to CPI will not have any effect this year.

“However, this year’s increase is below both measures of inflation so pensions are falling slightly in real terms. Furthermore, if inflation drops below this cap in future then the effect of the change to CPI may start to bite.”

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