With the release of the living cost indexes by the Australian Bureau of Statistics (ABS), an unusual trend has emerged.
The rolling 12-month inflation rate (Consumer Price Index) now stands at 7.3 per cent. However, the living cost index (Pensioner and Beneficiary Living Cost Index) used in Age Pension indexation stands at 6.4 per cent.
Now, remember that in pension indexation the higher of the CPI and the PBLCI is used.
Read: Inflation forecast delivers early estimate on next Age Pension increase
Why is the CPI outstripping the PBLCI good news?
The PBLCI tells you by how much pensioners’ cost of living has gone up. In compiling it, the ABS excludes, or gives a lesser weight to certain categories of expenditure. These are categories of goods and services that pensioners generally don’t use or don’t use as much and therefore don’t buy.
For example, most pensioners own their home and don’t pay rent. Rents have skyrocketed and have had a big effect on the CPI.
Mortgage repayments are not included in the CPI. However, the price of building new houses is and it’s gone up strongly.
Read: Is Age Pension indexation about to go monthly?
If the stars align on 20 March and 20 September 2023 (when pension indexation is applied), and the six-monthly CPI increase is significantly higher than the six-monthly PBLCI increase, pension indexation produces an actual increase in pensioner purchasing power.
It doesn’t happen very often. Of the 58 quarters since the PBLCI started to be used, the CPI came out higher than the PBLCI on 25 occasions, but only seven of those occasions coincided with, and were useful for, pension indexation.
But out of the past four pension indexations, three were of the kind where the CPI increase was much more than the PBLCI increase.
Read: Explained: The Work Bonus
Combined, those three indexations have delivered an increase in purchasing power of about $15 a fortnight for singles and $23 per fortnight for couples since March 2021.
While that is good news, it’s not good enough. Once these increases in purchasing power are offset against the money pensioners had to (and have to) find while they’re waiting for pension indexation, there will still be a significant net loss of purchasing power.
This is the reason why, particularly in times of high inflation, pension indexation needs to occur more frequently.
Paul Versteege is policy manager at the Combined Pensioners and Superannuants Association. This article is republished with permission.
Do you understand how the indexing of the Age Pension works? Would a little extra purchasing power make a big difference? Why not share your thoughts in the comments section below?
I’ve said it before, and I’ll say it again. The ONLY thing that will make a significant difference to pensioners’ spending power is the complete removal of the income test applied to pensioners by Centrelink. Thus, allowing pensioners to earn as well as receive a pension. The removal of income tax on ALL pensions would also greatly assist. Tax earnings, but not pensions.
all the hype about the indexation is absolute bullshit.—it does NOTHING to keep the pension in line with the cost of living .
ask any politician to swap incomes with us.
Agree, although experience is showing even when indexed, we fall behind.
I agree with monthly indexation for age pensioners as most pensioners no longer have any earning power so they are slipping further behind quickly now. Their health, safety and wellbeing are in danger and getting worse each year, especially during extreme weather conditions. I live in a Qld town with a lot of heritage and a high percentage of old pensioners with obvious health problems especially during the colder months, and there is nothing they can do about it.
I have said for a long time that indexation should be quarterly. Six monthly is too long to wait in times of high inflation.
Hi there. There are 2 aspects of the Age Pension that I deem to be very unfair.
1. Why do Age Pensioners residing overseas Lost most of the Supplement. Medications are still required, wherever any person lives. Answer please. Thank you.
2. How can it be fair to compare Pensioners who have no assets (including savings and basically live from payment-to-payment and especially single pensioners) compared to someone who has for instance; a spouse (= 2 pensions) owns a house (these days probably valued about a million dollars) (= No rent payments, Downsizing is an available option!).
It’s the same old, old boring story!!!! The rich get richer and the poor get poorer!!! A severe case of the HAVES and HAVE NOT’S.
Why can’t pension payments be based, not on what you are lucky enough to have, and instead, base the payments on what you do not have????
I have a lot more to say on this matter but I understand that the majority of pensioners DO own their own house, have supplementary superannuation benefits, and other savings and investments. I unfortunately, due to the GFC, 2008. Have basically none of the above.
Thanks for bearing with me.
Hi Denis.
I respect fully your comments, in general most are pretty on point.
However, we, as are many in our group of friends do own our homes, but, we do not have any super that provides us with additional income and neither do we have any savings! So, sure we do not have to pay rent but we do have the upkeep of our homes (things breakdown, air-con, ovens, tv, washing machines, roofs have to be maintained as well as fencing) our cars still cost us the same as they do for other people. Insurances are the same as for other people too …. and so on. Let me tell you we have to live from pension payment to pension payment. Thank you for hearing me out.
I absolutely agree Vivien. I’m a single pensioner living on a DSP. I own my own home but this year alone the upkeep has been expensive as I’ve had things break down, aircon to be serviced, plumbing, electrical and lots of medical expenses. My council rates alone per year are around $2,200 because I live semi-rural and we’re on septic, hence the higher rates. As homeowners we have house insurance and other expenses that renters don’t have. I try to live pension to pension and within my means. No going out for coffee, the movies or concerts but the money disappears like water down the drain.
Age Pensioners residing overseas choose to do so, and in many cases, get other local benefits that are not taken into account, so it makes sense to not add the Supplements. In many cases they get local support for medications. I lived overseas for a while and found I was better-off, but wanted to be home with lifetime friend and family.
There seems to be some misunderstanding of how pensioners with some assets may be better off and that they are not also living from payment-to-payment. There is some weird belief that single pensioners are worse off than a couple.
As someone with a spouse, I am no better off than someone who is a single. Yes, we spread some costs as we own our home with a mortgage, maintenance costs, insurances, rates, electricity and other costs. These far outweigh the Aged Pension, but we also have double health, health insurance, food, clothing travel and other costs.
We downsized to minimize costs, but still have plenty of costs. Smaller did not bring the promised savings. We got penalized for the cash we freed up when we downsized, although this is apparently no longer the case. However, it was not reversed. The view that downsizing is an available option is a total load of rubbish and not substantiated by any studies.
The politicians and the wealthy are segmenting society. They have taken as much as they can from one segment, so are fueling a BS story about haves and have nots, which is totally fictitious just so the rich can get richer, and the poor will get poorer. The real story of the HAVES and HAVE NOTS of Australia is the small percentage of truly rich (10%) and the average Australian.
A realistic pension system would be like Canada and little old NZ where everyone gets an aged pension, but everyone puts in an annual tax return. Those who earn more than a specific ‘free’ threshold, pay tax on their incremental earnings. It has nothing to do with what you have or don’t have. And these countries have an aged pension that is realistic, like ours once was.
I was almost at the end of my working life when Compulsory Super was introduced., so when I retired had virtually no super. I’d paid 7.5% my whole working life to the welfare fund towards my retirement and paid down most of my mortgage and saved a little, but nowhere near the amount required for retirement. We live okay, but not comfortably and cut expenses where we can. We are frugal and have to be, to get by.
Like many who own their own house, our little bit of superannuation is a tiny benefit, reserved for emergency expenses and our meager savings are what we use to supplement the Aged Pension which doesn’t cover annual costs, so it shrinks every year.
Our rates, levies, electricity, health insurance, general insurance and medical costs outstrip the aged pension. We don’t have investments and get some part-time work which covers the small but growing mortgage repayments. Luckily holding some savings in an offset account has cushioned us against interest rate increases.
I relate to your position, but vehemently believe driving a wedge between one group of retirees and another is just the sort of segmentation the rich need to succeed. It is known as divide and conquer. When one group is eliminated, the next group gets divided and played off against one another. Sadly, history has numerous examples of this being done and it is never for the good of the majority, just for the benefit of a very rich few.
If the rich and the politicians could no longer hide their money and assets in trusts and all paid the basic 39 – 49% tax on income, without being able to hide or offset income, Australia would be much better off. But unfortunately, no politician has the guts to bring this about. None even have the guts to cut the promised tax cuts to the rich (who don’t need them). They won’t deliver the caps on energy pricing. Why? Because they have to support the rich, not the fledgling general Australian. However, looking at votes, the politicians can find funding for childcare and $4.5B for foreign aid. Meanwhile they ignore the plight of older Australians, whom they hope will forget their treatment and die out.
Here we go again on that stupid and ridiculous couple’s pension.
I buy a steak it costs me 15.00
I buy 2 steaks, one for my wife it costs me $30.00
But the good folks at woolies are going to pay me a bonus to spend on the steaks.
I walk in with my mate down the street who is also on a pension and woolies give us $15.00 each to buy those steaks.
There is a guy behind me, with his wife and they want to buy the two steaks also.
But then the shop attended asks, errrr mate, are you married to that woman?
The guy replies yes, I am.
Oh, sorry sir, says the shop assistant, we have this rule, if your married we can only give you $11.50 each.
What !!! says the guy, how come?
Well, we have this committee also known as a camel they we formed back in the days of the dinosaurs when we were living in caves and they decided they didn’t like married couples, because they were all single and having the time of their lives and they agreed why can’t he just sleep around like the rest of us, they decided to stop this nonsense and penalize them for sleeping together or even just living together.
Does that make sense sir? sure it does, if you’re a camel.