Payment rates for the Age Pension have been frozen, although the prime minister has hinted that there may be a sweetener for pensioners before the next indexation review in March. But should the September indexation have been put on hold?
The Department of Social Services (DSS) confirmed on Tuesday that there would be no increase to the pension until March 2021, at the earliest, because Australia was experiencing deflation for the first time since 1998.
DSS deputy secretary Nathan Williamson said payments would essentially be frozen at their current rate. “Based on the calculation for indexation, if it’s negative, we don’t reduce the pension, but we also don’t increase it,” he said.
But … what were the key elements that took inflation to -0.3 per cent?
Australian Bureau of Statistics chief economist Bruce Hockman said that a 95 per cent drop in the cost of childcare during the June quarter (due to the pandemic), a big fall in the price of petrol and a drop in the price of preschool and primary education were to blame for the consumer price index (CPI) fall.
“Excluding these three components, the CPI would have risen 0.1 per cent in the June quarter,” he said.
Two of those components – childcare and preschool and primary education – would not have aided older Australians and who exactly is benefitting from cheaper fuel costs given lockdowns, border closures and restricted travel opportunities?
Movements in Age Pension payments are driven by indexation. That is calculated according to the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI), the Australian government website explains. It is then ‘benchmarked’ against a percentage of Male Total Average Weekly Earnings (MTAWE).
Indexing pension rates to CPI, says the website, maintains their real value over time.
“The PBLCI is designed to check whether pensioners’ disposable incomes have kept pace with price changes. The MTAWE benchmark is not intended to maintain the value of the pension relative to costs; it is seen as ensuring pensioners maintain a certain standard of living, relative to the rest of the population.”
Some YourLifeChoices members would argue that their standard of living has not been maintained.
Members’ response to news that the pension would not be increased next month was divided. Some reflected that the $750 stimulus payments were a valuable alternative, others decried the missing money.
This comment from CoogeeGuy was a common refrain: “It has been suggested that this year our CPI has gone backward only because the government introduced free childcare, and the fact that petrol prices have come down. Two things our elderly probably don’t use. But from my observations, grocery and meat prices have increased, and they are the two commodities the elderly definitely use …”
DaveR wrote: “If there was really no inflation, then I suppose no increase would be fair. But there is inflation. For example, my council rates just increased by 2 per cent and food keeps rising …”
And Arvo said: “Some food products in supermarkets have increased by 100 per cent. Domestic consumer electricity cost has increased. Council water charges have increased.”
And that’s not to mention supermarket delivery charges. Orietta said she now had to spend $200 in one purchase to qualify for free delivery – up from $150.
Council on the Ageing (COTA) chief executive Ian Yates says the indices used to determine movement in the Age Pension do not tell the whole story. He has written to Social Services Minister Anne Ruston asking for a third $750 stimulus payment for pensioners.
“While the two previous $750 payments have been very welcome, pensioners have ended up with less than people on the increased level of JobSeeker,” he wrote in a letter seen by the Sydney Morning Herald and The Age.
Combined Pensioners and Superannuants Association (CPSA) policy manager Paul Versteege defended the indexation system, saying it worked well. But he said there should be a permanent lift or supplement to the base payment for full-pension singles who were struggling to make ends meet.
So, what to expect come the next indexation date on 20 March 2021?
The Australia Institute senior economist Matt Grudnoff looked into his crystal ball for YourLifeChoices.
“What I’m predicting is that in the next quarter, the CPI will see a massive rise.
“For a period of time, the government made childcare free. So, the cost of childcare fell by 95 per cent but, of course, that’s now ended. So childcare fees then jumped back up.
“The other thing that forced it [CPI] down is the fact that because nobody’s driving – across the world, not just in Australia – oil prices are falling because there’s less demand. And not just driving, also flying. So when oil prices go down, petrol prices have fallen, but as the economy starts to open up, we would expect that to reverse. Demand will pick up and petrol prices will increase.
“The interesting thing about this is that people aren’t necessarily getting the advantage, particularly retirees, of lower petrol prices. Retirees are probably staying at home more and travelling less. In fact, everybody’s doing that.
“So … retirees are unlikely to benefit from childcare costs and they’re also not driving as much and not likely to benefit from the lower petrol prices.
“So, these sorts of big falls in the CPI are a bit illusionary. These people aren’t necessarily getting the benefit of it.”
And therein lies the problem for Age Pensioners.
Should there be a review of how the CPI affects the Age Pension to make it more relevant to older Australians?
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Related articles:
https://www.yourlifechoices.com.au/age-pension/news/pension-payment-reprieve
https://www.yourlifechoices.com.au/health/covid19/who-gets-an-icu-bed-in-a-crisis
https://www.yourlifechoices.com.au/age-pension/news/how-does-retiree-wealth-stack-up
