How are pension increases calculated?

James wants to know how the government calculates Age Pension increases.

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Q. James
How does the government calculate Age Pension increases? I believe they use an impressive fiddle factor to work out what one gets each increase in March and September, but they never show us their reasoning. I have looked on the web and cannot seem to find anything.

A. Most pensions are indexed twice each year (on 20 March and 20 September) by the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI).

They are then ‘benchmarked’ against a percentage of Male Total Average Weekly Earnings (MTAWE).

The combined couple rate is benchmarked to 41.76 per cent of MTAWE; the single rate of pension is set at 66.33 per cent of the combined couple rate (which is equal to around 27.7 per cent of MTAWE).

‘Benchmarked’ means that after it has been indexed, the combined couple rate is checked to see whether it is equal to or higher than 41.76 per cent of MTAWE.

If the rate is lower than this percentage, the rates are increased to the appropriate benchmark level.

Other income support payments such as Newstart Allowance are also indexed twice a year but only in line with movements in the CPI.

Indexing pension rates to CPI 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.

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Disclaimer: All content on YourLifeChoices website 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 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 Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Ben

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