Inflation estimate errors costing defined benefit sponsors £50 billion

Overestimated inflation projections could be costing UK defined benefit scheme sponsors more than £50 billion in unnecessary funding commitments, a corporate adviser warns

Estimates used by trustees to judge future inflation are 1% higher than actual levels of inflation – distorting the estimate of scheme deficits, says PricewaterhouseCoopers (PwC) today.

This, along with falling stock markets and gilt yields, has compounded the severe funding problems seen by corporate pension schemes.

PwC's London-based pensions actuarial practice head Raj Mody (pictured), says: "While pension schemes tend to make a small deduction to market-derived inflation models, say up to 0