‘Insidious’ inflation causing massive cost-of-living issues for Age Pension recipients

Retirees on the Age Pension have seen their cost of living increase far above inflation, according to the latest figures from YourLifeChoices’ quarterly Retirement Affordability Index report.

Since June 2021, The Australia Institute, which produces the figures for the report, has found that retired singles and couples who rent and rely on the Age Pension for their income have seen their expenses rise by 18.4 per cent and 17.4 per cent respectively. In contrast, the Consumer Price Index (CPI) has risen by 16.1 per cent in the same period.

In the past 12 months, renting couples who receive a pension have seen their living expenses increase by $1740 – or an extra $33.47 a week. Individuals who rent alone have seen expenses rise by $1161.98 a year or $22.34 a week.

Senior economist at The Australia Institute Matt Grudnoff, who compiles the quarterly Retirement Affordability Index, has called the quarter’s figures “insidious”, noting inflation is disproportionately affecting retirees at the bottom of the pile.

“What is striking is those tribes with lower average incomes have faced higher inflation, while those tribes with higher average income have faced lower inflation,” commented Mr Grudnoff. “One of the most insidious effects of recent inflation is that those hurting the most are the ones who can least afford it.”

What’s driving inflation for retirees in 2024?

The Australia Institute’s figures show that it’s primarily essential expenses that have climbed, and while affluent retirees who own their own home and have a private income have been able to absorb this, less well off older Australians have struggled to balance their budgets.

The cash-strapped couples tribe – renters on the Age Pension – are currently spending an average of $259 a week on housing, which accounts for 30 per cent of their overall expenses. In contrast, affluent couples – homeowners with a private income – spend 13 per cent of their outgoings on housing, a total of $232 a week.

It’s cash-strapped singles, though, who are seeing the majority of their money head to housing. Solo renters on the Age Pension are paying an average of $204 a week – or 38 per cent of their total expense. This group is also seeing 17 per cent of their outgoings go towards food and drink, which means over 55 per cent of their total expenses is taken up by housing and groceries alone.

With the cost of fruit and veg rising by 6.3 per cent in the past quarter, it suggests that many retirees who rent also face a struggle to eat healthily.

Health and transport challenges for homeowners on the Age Pension

While the high cost of groceries is affecting retirees of all incomes, the impact of April’s private health insurance increase is being felt most by homeowners on the Age Pension.

The average constrained couple – homeowners who receive the Age Pension – are paying $126.33 a week in health costs, a 5.7 per cent increase over the past 12 months. Analysis from financial marketplace Compare Club suggests that many over-65s are now paying an additional $177 on their health insurance, with an average annual premium sitting around $6024 for retired couples.

“Many health insurers raised premiums by more than the industry average of 3.03 per cent back in April,” said Compare Club’s head of research and insights, Kate Browne. “The average increase of the ‘big five’ was actually 3.57 per cent, with HBF having one of the highest premium increases of all funds.”

Ms Browne says it’s vital for retirees to give their cover a thorough review. “Many older Australians are extremely loyal to their funds but that means there may also be parts of their policy that isn’t working as hard as it could be. For example, they may be on an older policy that has particularly bad dental rebates or an expensive Gold policy that contains items they won’t need.”

Insurance premiums as a whole are causing pain for all retirees, with prices growing by a record 14 per cent over the past 12 years. This is largely due to high increases in home and motor premiums, something that disproportionately affects retirees in the constrained tribes, especially with fuel prices also jumping in the past quarter.

Overall, the constrained couples tribe is now spending an average of $1858.20 a year more than 12 months ago, while constrained singles are now paying an additional $1032 just to keep up with the cost of living.

Holidays and energy costs drop for over-65s

There are some bright spots. Mr Grudnoff believes that the amount spent on electricity should drop, thanks to the new rebates that came in from July, while gas prices also fell by 1.6 per cent in the past quarter.

The cost of domestic travel also continues to drop, which is good news for the homeowner segments in the Retirement Affordability Index. Affluent couples now spend an average of $339.15 a week on recreation, their biggest overall outgoing. Over the past 12 months, this cost has only grown by $3.06.

While the total average annual expenditure for private income retirees has grown by $1941 a year, this is only an additional $83 more than retired homeowners relying on the Age Pension. This is only a 3.2 per cent price inflation, less than the quarterly CPI figures of 3.8 per cent and a much lower increase in the cost of living than the 4.04 per cent hitting the wallets of over-65s who rent and rely on the Age Pension.

Which tribe in the Retirement Affordability Index do you identify with? How has the cost of living affected you in the past 12 months? Let us know in the comments section below.

Also read: Index shows retirement planning more important than ever

Disclaimer: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.