For retirees on a fixed or largely fixed income, rising inflation can be easy to overlook at first. Over time, however, it can place increasing pressure on everyday living and retirement budgets.
Everyday costs like groceries, utilities, insurance, and health care may not jump overnight, but their ongoing rise can erode purchasing power and place pressure on retirement budgets.
For many retirees, this creates a challenge. Fixed retirement income can struggle to keep pace, particularly if investment returns are volatile. Periods of market uncertainty can further complicate income planning. This can make it harder to feel confident about long-term financial sustainability and everyday spending decisions.
Helping manage the impact of inflation in retirement
To help address this challenge, industry super fund Hostplus has developed a Pension investment option called CPIplus. The option’s returns are set at a level above inflation, aiming to help retirees keep up with rising living costs.
Importantly, CPIplus seeks to provide more certainty around outcomes. Returns from CPIplus are set in advance at a specified level above the consumer price index (CPI). This means returns aren’t directly affected by the day-to-day performance of the underlying investments, and retirees won’t receive a negative return due to CPIplus having a daily floor of zero.
This structure is intended to help protect members from major CPI movements and market volatility. By setting returns in advance and removing exposure to short-term market movements, CPIplus targets long-term returns that are more consistent and less volatile than growth assets such as shares, while generally aiming to deliver higher returns than defensive assets such as cash or bonds.
In an environment where inflation expectations can shift quickly, having a retirement investment that takes inflation into account can help retirees plan with greater clarity and confidence. The goal is more certainty over returns in retirement.
More peace of mind
Retirement investing is often framed as a balance between risk, return and income needs. Simplicity is another factor, particularly once regular employment income has ceased.
Too many choices can be overwhelming for retirees. With an expanding range of products, strategies and market commentary available, making confident decisions can become difficult and time-consuming.
CPIplus is designed to provide more predictable returns and can reduce the pressure to react to daily market noise.
Understanding how returns are set and knowing they are not driven by short term market movements, can help retirees feel more confident about their approach to retirement. For members who want help making sense of options like CPIplus, Hostplus offers access to financial advice, including digital tools and personal support, to help members better understand their options and plan for retirement with greater clarity and confidence.
It may also make it easier to align investment decisions with broader retirement considerations, such as drawdown strategies, longevity planning and lifestyle choices.
As with any investment, CPIplus may not suit every retiree. But for those seeking an option that addresses inflation risk and aims for smoother returns, it represents an innovative addition to the retirement investment landscape.
*Though returns above inflation are predetermined annually, Hostplus can shorten the return period. Hostplus may also adjust the rate of return with at least 30 days’ notice. You must have a Hostplus Pension account. General advice only. Consider the Hostplus Pension PDS and TMD available at hostplus.com.au, and your objectives, financial situation and needs, which have not been accounted for, before deciding. Past performance is not a reliable indicator of future performance. Issued by Host-Plus Pty Limited ABN 79 008 634 704, AFSL 244392 as trustee for the Hostplus Superannuation Fund ABN 68 657 495 890.