Which type of benefit helps preserve purchasing power against inflation?

• A. Index-linked or inflation-protected benefits.
• B. Flat fixed benefits.
• C. A pension with no cost-of-living adjustment.
• D. A lump-sum payable at retirement.

Answer: (A)

Inflation protection keeps retirement income in step with rising prices. When benefits are index-linked or inflation-protected, the payment amount increases periodically in line with a price index (like CPI). This maintains the real value of the pension so its purchasing power isn’t eroded by inflation over time.

Flat fixed benefits don’t adjust for inflation, so their real value declines as prices rise. A pension with no cost-of-living adjustment behaves the same way, losing purchasing power over time. A lump-sum at retirement isn’t an ongoing benefit, so it doesn’t provide automatic protection against future inflation.

So, the option that preserves purchasing power against inflation is the inflation-protected or index-linked benefit.