Pensions likely to be hit hard by RPI increase

Aon Consulting has calculated that providing an equivalent increase to UK pension schemes is likely to be approximately £25 billion, of which only £15 billion would have been budgeted based on company estimates of a 3% inflation rise.

Marcus Hurd, head of corporate solutions at Aon Consulting, said: "This additional significant financial burden comes at a time when most UK companies can least afford it."

RPI is a benchmark indicator for pension increases, so most pensions are legally obliged to increase in line with inflation up to a maximum of 5% on pensions earned between 1997 and 2005.

Hurd added: "While pension scheme members will welcome higher pension increases, most companies would be reluctant to provide additional benefits in the current climate if they had a choice, and would prefer to wait until schemes are back on a stronger footing."