People with inflation-linked pensions schemes could be £1,500 better off by 2024 compared to those with 5% caps on their plans.
“It’s easy to assume that all pensioners are similar when it comes to income, but that couldn’t be further from the truth,” said Alice Guy, head of pensions at Interactive Investor.
Inflation-linked pensions are given to all public sector workers including nurses, teachers, armed forces, and local governments.
Many private sectors provide employees with schemes that limit increases to only 5% per year.
Yet, inflation-linked pension schemes are updated every April to increase in line with CPI inflation over the last year.
This year, these schemes rose by 10.1%.
If somebody received a £20,000 inflation-linked pension in 2022/23 as well as the £9,6000 state fee it would increase £32,620 this year.
In the following year, should inflation slow to the Bank of England’s estimate of 7%, this would increase the pot to £34,903.
In comparison, a capped pension would rise to £31,600 this year and then to £33,392 by 2024.
This represents around a £1,000 difference this year and over £1,500 in the following twelve months.
Guy added: “Because of the way pensioner income is calculated, this gap will widen over time as future increases are based on current values so even small differences really mount up.”