The continued inflation rate of 3 per cent in October, unchanged from September 2017, could affect auto-enrolment opt-out rates, according to Aegon head of pensions Kate Smith.

Publishing the October figures today, the Office for National Statistics revealed the inflation rate for food and non-alcoholic beverages continued to increase to 4.1 per cent, the highest since September 2013. Rising prices for food and, to a lesser extent, recreational goods provided the largest upward contributions to change in the rate between September 2017 and October 2017.

However, the upward contributions were offset by falling motor fuel and furniture prices, along with owner occupiers’ housing costs, which remained unchanged between September 2017 and October 2017, having risen a year ago.

Commenting, Smith said people are facing a “triple whammy of squeezes in their purse”, with inflation still running high, rising interest rates and little sign of real wage increases for the majority of workers.

“In the near future, these pressures could act as the first big challenge to the government’s auto-enrolment programme. With employee pension contributions set to triple from 1 per cent to 3 per cent in April there’s a risk opt-out rates may spike as people start to notice the impact on their take home pay. The government has few options to avert this other than to offset the decrease in disposable income with an increase in the tax free personal allowance.

“Employers also face hard decisions. With their auto-enrolment contribution doubling from next April, increases in the minimum wage and Brexit uncertainty, many will struggle to justify wage increases. Employers are between a rock and a hard place, not knowing whether to flag up auto-enrolment increases to their employees to be helpful and drive up pension engagement, or whether this risks putting them off pension saving.”

Commenting more generally on the inflation figures, The Share Centre chief executive Richard Stone said the fact that inflation remained the same was “slightly surprising” as many economists expected the impact of Sterling’s devaluation following the EU Referendum to continue to come through in the figures and drive inflation higher.

“The move by the Bank of England to raise interest rates last week ensured that, had the Governor had to write a letter to the Chancellor because inflation was above 3.0 per cent, then he would have been able to point to some action already being taken. The effects of the devaluation of Sterling, particularly on imported inflation in respect of food, are clear. However, these were offset in part this month by a moderating of fuel prices which meant transport costs were actually lower month on month when compared to September. Along with falls in furniture prices this helped keep the inflation rate at 3.0 per cent.”

In addition, Stone also highlighted the “stark” continued squeeze on the consumer and on personal investors. He said different aspects of the inflation basket affect different elements of the population to varying degrees.

“Those with lower incomes will inevitably spend a greater proportion of those incomes on food, fuel and housing, and less on leisure, for example. The fact that food inflation is running at 4 per cent, per annum compared to wage inflation at just 2.2 per cent, demonstrates how the living standards and ability to find spare income to save and invest are being squeezed, with real incomes continuing to fall.”

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