UK - Insurers will be forced to increase buyout prices in the medium term unless CPI-linked instruments are issued in the coming months, Punter Southall says.
The consultant said at the moment any CPI risk insurers hold will have to be on their own books because there are no CPI-linked financial instruments in the market to pass the risk on to.
Punter Southall senior consultant Matthew Furniss explained: "If insurers hold the risk themselves they have to hold more capital to protect against that risk going wrong - that leads to higher prices down the road should these instruments not become very available over the forthcoming months."
Furniss added there is an "absolute need" for the Debt Management Office to issue CPI-linked bonds.
He said: "It is a sensible thing for the DMO to do to raise money as there would be plenty of demand. The more CPI-linked bonds the DMO issue then the more CPI-linked securities other organisation can issue at more competitive rates.
"It can hopefully become similar to the RPI market but that is a long way off at the moment - months, if not years."
LCP partner Charlie Finch (pictured) added: "A lot of traditional insurers are unwilling to insure material amounts of CPI at the moment - given there are not investments to back those liabilities it is unlikely that the prices would be any lower than you would pay for RPI liabilities.
"I would be very supportive of a market in CPI investment links because that would reduce buyout prices and help pension schemes match their liabilities appropriately."
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