Norm says much of his recent Age Pension increase has disappeared due to subsequent rises in expenses and asks whether the pension should be linked to the CPI (Consumer Price Index). Matt Grudnoff, senior economist with The Australia Institute, explains how the system works and why it might not suit everyone.
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Q. Norm.
I love your eNews and find the information very useful. I was just wondering if you have investigated the effect of the recent CPI on the Age Pension increase.
I received an increase of $14 per fortnight on my Age Pension. Of this:
- $3.50 was taken up by a CPI rent increase – I pay 25 per cent of my income
- $2 was taken up by an increase in care package management fees, based on the CPI increase
- the price of potatoes went up in our local supermarket by $1 and I believe that other prices were increased by a few cents per item.
My Age Pension increase has been eroded by at least $6.50, and possibly more. I would also like to know exactly what the CPI is based on, as it may be on some things that pensioners can’t afford to buy.
A. The CPI is based on a basket of goods that the ‘average’ household consumes. The Australian Bureau of Statistics (ABS) produces the numbers and they get what an ‘average’ household consumes from the Household Expenditure Survey. This survey asks a large representative sample of people to account for every cent they spend over a two-week period. They use those results to work out an ‘average’ household.
Of course, if you put your head in the freezer and your feet in the oven, your average body temperature might be fine, but you’re unlikely to be comfortable. Averages can hide results at the extremes.
The more closely your spending patterns match the ‘average’ household’s spending patterns, the more accurate the CPI increase will be for your personal inflation rate. The problem is that the ‘average’ household refers more closely to a couple paying off a mortgage and with young children than to a retired person living on the Age Pension.
The work we did with YourLifeChoices’ Retirement Affordability Index resulted in the creation of profiles that more accurately reflected the ‘average’ households for six retired tribes: Affluent, Constrained and Cash-Strapped couples and singles.
These profiles have shown that retired renting households have faced much higher inflation rates than other retired tribes who own their home.
If you have a Centrelink question, send it to [email protected] and we’ll do our best to answer it, or find someone who can.
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