Retirees need inflation protection

by |

Unpredictable markets are leaving investors nervous and unsure where to turn to.

That’s according to MLC Chief Investment Officer Jonathan Armitage, who says traditional diversified funds aren’t delivering the returns that retirees need. For these clients, the timing of losses is critical, because a loss close to retirement can have a significant impact on their future income.

“Retirees need an investment fund which controls risk and avoids significant drawdowns, while also having the capacity to generate the returns needed to support their lifestyle in retirement,” said Armitage.

In an attempt to address these challenges, MLC has launched new actively managed portfolios, which aim to give retirees peace of mind and returns above inflation.

While headline inflation is quite benign at the moment, Armitage says that there are plenty of sectors where prices are going up faster than that headline inflation, particularly around things like healthcare. Inflation is acting like “a tax on people’s investment savings”, he says, so these portfolios are designed to deal with that.

“Our approach to managing risk is different to our competitors. The ability to track future risk, return and diversification using our scenarios framework is unique to our process. It is also key to ensuring consistent risk control and higher reward for risks taken,” said Armitage.

MLC Wrap is now offering the three investment portfolios:

  1. MLC Inflation Plus – Conservative: Most suitable to the risk averse and those already in retirement
  2. MLC Inflation Plus – Moderate: Most suitable for the risk aware and those in the pre-retirement phase
  3. MLC Inflation Plus – Assertive: Most suited to the risk tolerant and those in the accumulation phase

The assertive fund has existed for more than 7 years under a different name – long term absolute return – so this is not a new concept for MLC. Armitage says that the product has been tested in pretty tough times, including through the GFC, so MLC is confident that they have the expertise to make this type of product work.

  • Rosemary Johnston on 3/10/2013 10:41:21 AM

    Protecting the spending power of retirees is vital. Two percent inflation halves the spending power of money over 35 years. This is a huge issue for those in non growth assets. As retirees age and their health care expenses increase they will need spending parity with their earlier years or will need to cannibalise their asset base.

    This may be why property is such an investment 'darling' in this space. It rises in value over time with inflation and any borrowings decrease in value due to inflation, a win win situation. Holding multiple unencumbered properties for inflation protection and selling them over time to support retiree spending power has merit as a useful strategy. Great to see others reporting in this way to support investor understanding.

  • GAB on 3/10/2013 6:09:11 PM

    What are you on about Rosemary? Nice property plug....what about rental vacancies, maintenance costs, rates, insurance? Oh that's right, rent covers all that until the tenant vacates I suppose which often coincides with a rental oversupply in which case property values fall for extended periods. And lastly, where does the average retiree get all these unencombered properties from? Please... don't tell me, I already know the answer.....a geared up SMSF?

  • Jon Harding on 4/10/2013 7:50:45 AM

    Let's not forget the hideous entry and exit costs associated with property as well. Of course this is excluding all the costs associated with running a SMSF as well (if the property is acquired via this structure).

    From a yield point of view, property would be comparable to bank interest when you factor in holding costs and this is assuming the property is debt free.

    Unfortunately there are way too many property advocates that think the next boom that happended in 01-03 is around the corner. We all know that was once in a generation.

  • Rosemary Johnston on 4/10/2013 9:36:02 AM

    You guys are so cynical about property and with many of the standards of so called advice I can understand. Our organisation is seeking to bring property investment advice to Financial Planning standards to support informed decision making by clients.

    This move away from the real estate transaction and all its puffery will go a long way to supporting clients with appropriate services.

    Clients love property and there is real concern about releasing their SMSF funds into this sector. What we need is a well regulated sector. AFR wrote a great article this morning. tinyurl.com/q9cmkt2

  • Innocent Observer on 5/10/2013 9:00:50 AM

    @Rosemary, perhaps the reason so many advisers are cynical is for the same reasons you have cited as support to the "buy property" argument.

    Such as the "win win" situation you talk of. It is called inflation. By the same merit it would make sense to take an interest-only loan to borrow to invest in term deposits or IABs. In both cases the investor will likely be positively geared in 10 or 15 years, but clearly it is still a poor investment strategy.

    This is a perspective most investors seem to struggle with when it comes to property.

    This is where an "adviser" - and by this I mean someone who understands valuation, strategy and historical/current characteristics of the asset class - can add value. I'm not going to question your own qualifications here as I think they are quite obvious given your comments. We have spent a lot of time (years) involved in property research for professional and institutional investors, which makes it doubly bizarre when we see property spruikers (and *advisers*) selling a pitch that's based on false information and false history.

    To improving the quality of advice in this asset class we need to improve honesty, transparency and reporting standards. In my opinion the first step is a simple one: regulate property as a financial product and make advisers accountable and liable for the advice they provide. Simple stuff.


    (Also, just pointing out the obvious here, but you will be aware that taxes are assessed against nominal, not real (i.e, inflation adj.), values. Net of transaction costs & tax, property isn't necessarily the inflation hedge that many believe).

  • Rosemary Johnston on 8/10/2013 8:55:13 AM

    Love your comments @innocentoberver! Yes we need to regulate as real estate law allows puffed up claims to advertise and sell a property while investment advice needs to be based on facts. Clients are being given real estate claims and are unable to make an informed decision.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions