UK - The differential between the consumer price index (CPI) and the retail price index (RPI) is set to increase to more than 1%, consultancy KPMG has warned.

The Office of National Statistics recently announced changes to the way the price of clothing and shoes are monitored for inflationary purposes, noting that the previous method did not fully account for seasonal fluctuations.

As a result, the Bank of England's recent Inflation Report noted that the annual CPI increase had been underestimated by 0.3% between 1997 and 2009.

KPMG estimated the change would be twice as pronounced in RPI, widening the gulf between the two measures at a time when public sector pensions and a number of private sector plans switch to CPI as their measure for inflation-proofing benefits.

Mike Smedley, pensions partner at KPMG said: "This just highlights that the small-print lottery of company pension scheme rules will have an even greater impact than we previously thought."

KPMG said that, due to the change, both groups of retirees would now enjoy slightly higher increases. However, those linked to retail prices will see their pension worth around 13% more after 20 years, due to a 0.6% p.a. increase above CPI.

Meanwhile, Deloitte has warned that trustees must do their best to engage with auditors when they examine pension scheme accounts.

Speaking as the Pensions Regulator published guidance on what trustees can expect from their auditor by way of record-keeping, Sue Barratt, head of the UK pension and audit leadership team, said it was important for trustees to know the work undertaken by both scheme administrators and auditors in relation to scheme records.

"This is so trustees can determine, in anticipation of regulatory scrutiny or members' questions, whether any further work is required, and if so, who should perform that work," she said.

"Auditors themselves should not be complacent and expect that trustees will permit auditors to absolve themselves of any responsibilities in respect of scheme records."

She added: "Trustees will expect more than just a ‘vanilla' audit, and the ability of auditors to demonstrate how they have added value to trustees, such as through providing insights into their systems and benchmarking these against those of other schemes, will be a key differentiator between audit firms."

Barratt further urged auditors to fully take into consideration how issues such as buy-ins, buyouts and enhanced transfer values impact on the scheme, as well as the impact of sponsoring employers reducing deficits through means other than cash contributions.

In the recent past, some sponsors have used property, as well as alcohol, as contingent assets in an effort to reduce shortfalls.

Finally, Loomis UK Pension Scheme has appointed Mercer as administrator. The appointment, part of an effort to streamline pension provider arrangements, follows Mercer's appointment last year to provide implemented consulting for the scheme.

Stephen Hyams, Mercer's client relationship manager for Loomis, said: "Our pensions administration services were offered as part of a packaged outsourcing solution with a competitive fixed price.

"The trustees were looking to reduce costs and manage their time more effectively by delegating day-to-day investment decisions and focusing on the important strategic decisions for the fund."

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