Index-linked gilts

Index-linked gilts are sterling bonds issued by the Bank of England and listed on the London Stock Exchange, introduced to act as a hedge against inflation for pension funds.

MoneyWeek's avatar
By
published
in Features

Gilts are sterling bonds issued by the Bank of England and listed on the London Stock Exchange. They carry a very low risk of default - the government has never missed a payment. Index-linked gilts were first introduced in 1981 to act as a hedge against inflation for the pension funds, and other types of investor soon picked up on them. By the end of March 2002 they made up 26% of the government's gilt portfolio.

With an index-linked gilt, both the income from the semi-annual coupon payments and the price at which it will be redeemed when it matures are adjusted to take account of the movement in retail prices. The way this is done is by raising and lowering the redemption price in line with the retail prices index (RPI) so that both the income and the capital retain their real value - although in practice, they do not match it exactly.

Article continues below

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More
MoneyWeek
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.