Pension scheme liabilities hit by inflation rise

The narrowing gap between CPI and RPI inflation means pensions schemes will save just 60p a week for each scheme member by switching to CPI, KPMG says.

From April 2011, private sector final salary occupational pension schemes have been allowed to index pension payouts by CPI instead of the higher RPI if their scheme rules do not specifically prevent it.

CPI was 5.2% and RPI at 5.6% in September. Experts said the narrowing of the figures were of concern for private sector scheme trustees who had hoped the switch would cut their liabilities.

KPMG pensions partner Mike Smedley said the rise in CPI would ease the "pensions lottery effect".

"The ‘pensions lottery' effect of there being a major difference to pensions increases according to which measure is used, has eased substantially," he said.

"Many private sector pension schemes base their annual increases on the September inflation figures.

"With just 0.4% between CPI and RPI, the difference to the average annual private sector pension of around £8,000 is just £32 a year or 60p a week."

However, Sarah Brown, head of inflation research at Punter Southall, said with many private sector schemes operating an annual inflation cap of 5%, basing annual increases on CPI or RPI may make no difference to actual payouts.