Since the UK government linked future increases in the pension lifetime allowance to the consumer price index (CPI), the September figures have taken on a new level of importance.
The news on Wednesday that there had been a shock fall in August to 1.7% from 2.1% in July will likely be of concern to those on the cusp of hitting the current £1,055,000 ($1.3m, €1.2m) threshold.
If the rate stays unchanged next month, the April 2020 increase stands to be around £1,073,000.
But if inflation returns to 2.1%, it would be more than £4,000 higher.
While that may not seem a lot in the grand scheme of things, it could be a vital buffer for some.
Two pressing issues
Speaking to International Adviser, Aegon pensions director Steve Cameron pointed to two factors that could help lift CPI.
“If sterling falls or becomes weaker over the next month, that could put upward pressure on inflation.
“The other factor is the oil supply from the Middle East. If there was to be any sustained reduction in the supply of oil from the region that would affect oil prices and have a knock-on impact on broader prices – not just fuel.”
“It really depends on how these factors play out over the coming days and weeks.”
He added: “Generally speaking, increases in inflation have adverse consequences but, in this instance, it could have a positive outcome for those approaching the current lifetime allowance threshold.
“The other aspect is that a weak sterling is likely to boost the FTSE, so if you are sitting just below the lifetime allowance and you’re invested heavily in the FTSE100, then a weak sterling might push up the value of your defined contribution pot.
“Therefore, those at risk of crossing that line would hope that CPI goes up quite a lot,” Cameron added.
