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Will the pension increase in March?

Regular Age Pension indexation is due next month, but there’s no guarantee of an increase. Why not, and what’s wrong with our pension system?

Key Points

  • Pensions are indexed twice a year to take into account cost of living increases/inflation
  • Seniors living-essentials cost more but the pension may not keep pace
  • National Seniors says an independent tribunal is needed to set and manage the Age Pension

Asking the question, ‘Will the pension increase?’ supports National Seniors’ argument that there is too much uncertainty about the Age Pension. 

It’s time to take politicians out of the process and establish an independent Age Pension Tribunal.

The Tribunal, which we discuss later, would be at arm’s length from the government of the day and be a fair arbiter in taking uncertainty out of the pension.

It’s what happens with the minimum wage, politicians' pay and other important income setting processes, so why not?

Pension and CPI increase

The cost of essentials, such as health, housing, transport and energy have increased far quicker than non-essentials. 

That’s why National Seniors has long campaigned for an increase in the Age Pension. It is simply too low for some older Australians to live on.

More than half a million people rely on it as their sole source of income, and many of these people are struggling.  

One of the few ways that retirees have been assured of an increase in the pension is through the government’s indexation assessment, which considers inflation and living cost increases to adjust the pension twice a year.  

How are pensions set?

Pensions are indexed twice a year to account for increases in living costs and benchmarked against average wage inflation.  

The first step in the process is to assess CPI change over a six-month period. To do this, government uses the highest of the following two inflation calculations, either:

  • the Consumer Price Index (CPI) – which is a measure of changes in the prices paid by households for a fixed basket of goods and services, or
  • the Pensioner and Beneficiary Living Cost Index (PBLCI) – which measures the effect of price changes on the out-of-pocket living expenses experienced by households whose main source of income is government payments. 

These are then benchmarked against the Male Total Average Weekly Earnings (MTAWE), which is set by the Australian statistician, to ensure pensioners maintain a certain standard of living, relative to the rest of the population. 

So, what happened in September?

Last March, pensioners received an increase in-line with an increase in the cost of living. However, September saw no increase – for the first time since 1997. 

The justification for this doesn’t make sense for pensioners.  

Sure, inflation was negative but not for essential items for people on low, fixed incomes. Costs that went down were for childcare and education, transport, petrol, and recreation.

But essential items such as housing, food and clothing actually went up, though not by much. Seniors were the group most likely to have found their overall costs increased last year and the freeze in pension rates would have hit them particularly hard.

To add insult to injury, because male average earnings haven’t risen significantly and the pension remains above the MTAWE benchmark, this meant there was no increase in September. 

Inflation now

Inflation has started to rise again, although it is still low by historical standards. It rose by 0.9% for the three months to December 2020 and by 1.6% for the three months before that to September 2020. 

Despite those increases, the annual rate of inflation was only 0.8%

Why is that?

It’s because of the pandemic, the impact of which is still affecting the rolling 12-month figures which remain very low.

Some commentators say a pension increase is likely but how big that will be is yet to be seen.

Understandably, pensioners want more certainty about such an important financial matter.

Let's meet the needs of all Australians

Sadly, the Age Pension has become a prime target for Budget savings with arguments about the cost of the pension used to justify cuts. Younger taxpayers are being told by government they are bearing an increasing burden to fund the pension. 

National Seniors members want politics taken out of the process.

An Independent Age Pension Tribunal is the first step to a fairer retirement income system that meets the needs of all Australians. 

What would it do?

Simply, it would take responsibility for calculating a fair and adequate pension rate.  

It would work out the pension rate and any supplements based on need and circumstance. Its decisions would be accepted without debate in the same way monetary policy is set by the Reserve Bank.  

The Tribunal will hand down its determination every November to provide enough time to be accounted for in the May Budget.

What can you do?

If you want to support our efforts to create an Independent Age Pension Tribunal, sign up to our Fix Pension Poverty campaign.  

You will receive information about other measures to support pensioners, as well as regular updates.

You can also help by becoming a National Seniors member (if you are not one already).

Become a member here.

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