Pensions face RPI-CPI basis risk

Pension pricing peril

An announcement by the UK government in July that a chunk of the pensions market will use the consumer price index (CPI) rather than the retail prices index (RPI) to calculate annual increases in pension payments sent inflation markets into a spin. Thirty-year inflation swaps dropped by around 15 basis points in the days following the announcement, as market participants struggled to make sense of what it would mean for the hedging of pension liabilities and the inflation market as a whole