UK - UK pension schemes must act quickly to hedge against inflation, Hymans Robertson warned as the consumer prices index (CPI) rose above 5% for September.

The warning came as fellow consultants KPMG predicted schemes that switched to the retail prices index (RPI) would not see benefit payments fall dramatically, as the difference between RPI and CPI came to just 0.4 percentage points last month.

However, Clive Fortes, partner at Hymans Robertson, conceded that the currently high short-term inflation was likely to fall over the course of 2012, with long-term inflation rates already at levels rivalling those prior to the 2009 turmoil.

"Long-dated inflation should have this priced in already," he said, adding that this was hard to say for certain due to the volatile market and problems within the euro-zone.

"One thing is certain," he added. "If hedging inflation does get cheaper, there will be a rush of companies and pension schemes looking to capture the opportunity, and only those that are ready and act quickly will get their hedging done."

He added that the 5.6% RPI rate would be problematic for many companies, as the average inflation estimate for pension funds was set at 3.5% per annum for RPI, while CPI was calculated to be 2.8% over the year, compared with September's rate of 5.2%.

Meanwhile, Mike Smedley of KPMG predicted that the increasing inflation rates would do away with any gains made by pension funds upon switching from RPI to CPI, the government's preferred rate of inflation, as it was traditionally significantly lower.

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

"With just 0.4 percentage points 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."

He added that, in those schemes that capped inflation at 5%, the high rates would mean a switch to CPI would make no difference.

Smedley further warned about the fallout the high CPI rate would have for the public sector, currently seeing a number of changes to both funded and unfunded funds as the Treasury looks to implement cost-saving measures.

"An annual 5.2% increase on the circa £30bn public sector pensioner payroll adds an immediate £1.6bn to next year's public sector pension payments," he said.

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