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 to define expected inflation as the “conventional” yield minus the “index-linked” yield, with corresponding durations. This approach is, apparently, used for swaps. So, in order to avoid circularity, we can't take swaps as an alternative approach.
Mandatory for PPF section 179 assessments, that is not the case 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. Although FRS17 refers to duration for discount rate (§32), it doesn't refer to duration for inflation (§26). Nor does PPF for §179 assessments, where one size fits all. Given that yield curves tend to slope upwards, that does beg questions.
While similar outstanding terms may seem logical, maturity may be more of a problem than has generally been observed. After all, the ILG “duration” must be longer than for conventional gilts because the return is more heavily weighted towards capital. Indeed, at present, the weighted mean coupon is equivalent to 0.66%, with a number of ILGs having been issued with a coupon as low as 0.125%.
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. Should RPI be replaced by CPIH for ILG payments, that will make the current common approach even less justifiable.