But annual increases in private sector defined benefit plans are typically limited to 5 percent, even if inflation is much higher. Retirees are on course for a second blow in 2024, as the ceiling will cost them further if high inflation continues next year.
Tom Birkin, of XPS, urged pension companies to reconsider the limits. He said: “Pension schemes should explore options to support their members through this challenging period. Those who can should consider whether they can support their participants financially, through additional pension increases beyond the applicable limits.”
Meanwhile, former public servants, doctors and teachers with similar but more generous defined benefit plans could receive an increase of up to 10 percent in their annual retirement income, funded by taxpayers.
These expensive retirement plans promise to pay out a guaranteed income that rises each year with inflation, protecting retirees from the worst cost of living crisis. Pensions Minister Guy Opperman admitted this summer that public sector pensions like his were “unsustainable” and needed reform.
Workers with defined contribution pensions, which are now owned by the majority of workers, are expected to take the brunt of rising prices. These pensions have no safety net to guarantee an annual increase when inflation is high. They are usually largely invested in stock markets, which have taken a plunge and have no guaranteed returns.