UK pension funds are making greater use of derivatives as regulatory changes force them to take a more liability-driven approach, say consultants.

The market for inflation-linked swaps is set to triple from £3bn (€4.5bn) last year to more than £9bn by the end of this year because of pension fund demand, according to Watson Wyatt. These swaps enable funds to compensate for changes in the inflation rate. Funds use them, with other derivatives, in the hope they will have sufficient money to meet pension commitments in different market conditions.