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MyCompanyPension.co.uk - Helping members of occupational pension schemes to better understand their benefits.
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:: Blog | February 2009 (16 blogs) | Why deflation could help pension schemes
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Why deflation could help pension schemes
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Inflation and pensions share a love-hate relationship as low inflation transfers through to reduced prices on the high street. However, this might not help all pensioners as recent figures show that 40% of pensioner spending goes on food, council tax and energy. For pensioners low inflation means smaller annual increases to pension income and, in reality, many pensioners’ household inflation is usually nearly double the reported RPI figure.
Higher inflation partially protects pensioner income through greater annual pension increases, helps deferred pensions and is generally reflected in better savings rates. The negative of course is that true inflation is often much higher than published figures for CPI and RPI.
Inflation also affects pension schemes and this is touched upon in an article from the FT.com, which I found both illuminating and somewhat depressing. This was an interesting comment though:
‘Globally, according to Citigroup, pension funds still have more than 40 per cent of their assets in equities, and rather less than that in bonds. Yet, global equities have returned minus 29 per cent this decade and government bonds plus 80 per cent. Absurd as that seems, there is a perverse logic to it. For companies, equities have become the equivalent of the loser at the casino putting yet more money on the red.’ See:
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Mike Jones, MyCompanyPension.co.uk Ltd, February 9th 2009
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