[uk_rpi] [common_UK_approach]

The following is based upon our joint knowledge of current UK practice. There may be actuaries who do something different, with Bank of England yield curves increasingly used, but little else is well-known. Indeed, we would be interested to learn of different practices in this area.

The normal approach is described here. This is mandatory for PPF section 179 assessments but is not mandatory for FRS17 (there is merely a strong steer in section 26). While IAS19 has mostly swept FRS17 away, we are unaware of any further relevant guidance.

While the normal approach is admittedly simple, it is also simplistic. In particular, this methodology has led to significant distortions. Indeed, in terms of tracking RPI, ILGs have not even performed well. Nor has the relative performance against conventional gilts been that impressive.

Should RPI be replaced by CPIH for ILG payments, that will make the current common approach even less justifiable.