How minimum wage rise will affect age pension and aged care

While the 5.2 per cent minimum wage increase is good news for low-paid workers, how will it affect retirees and those nearing retirement?

Yesterday, the Fair Work Commission announced it would lift the minimum wage by 5.2 per cent, taking the hourly rate to $21.38 and the weekly rate to $812.60.

The decision is undoubtedly good news for Australia’s lowest-paid workers, but for retirees, and those nearing retirement, it is less positive.

An increase to the minimum wage will be passed on by businesses. This will be felt especially keenly at the supermarket where many staff are on a minimum wage.

Read: RBA lifts official interest rate by 50 basis points

For those living on the Age Pension, the wage rise could potentially mean a bigger bump to the pension when it comes up for indexation again in September. The 2.1 per cent pension rate rise in March was the biggest in almost a decade.

The Age Pension rate is calculated by benchmarking Consumer Price Index (CPI) and the Pensioner and Beneficiary Living Cost Index (PBLCI) figures against the male total average weekly earnings (MTAWE).

The increase to the minimum wage means the MTAWE will also lift, which suggests a bigger than usual bump to the pension rate when it is next indexed in September.

But Paul Versteege, policy manager at the Combined Pensioners and Superannuants Association (CPSA), cautions against banking on a sizeable Age Pension increase.

Read: Switching supermarkets could save you $2500 a year

“If minimum and award wages go up, it will obviously have a bearing on the average weekly wage, but whether it is enough to lift the overall male average weekly earnings enough for it to be used as the basis of pension indexation is doubtful given only 180,000 people are paid the minimum wage – and especially as so many of those 180,000 workers are women,” he told YourLifeChoices.

“Currently, the male average weekly wage is $1577. It would need to be just over three per cent higher at $1626 to be considered for pension indexation.”

However Mr Versteege is confident the minimum wage bump will have a serious impact in another area – residential and in-home aged care – unless government funding of the sector is increased significantly.

Read: Health and aged care job vacancies at critical levels: report

“The wage bill in aged care is something like 70 per cent of overall [aged care] costs,” he said, “and a large proportion of that goes to workers on a minimum fewer.

“In nursing homes it might mean even fewer care workers and in home care it may mean less hours if increased funding doesn’t come through.”

Paul Sadler, CEO of the Aged and Community Care Providers Association (ACCPA) agrees the aged care sector needs more government funding if it is to survive the wage increase.

“A significant wage increase for our workforce is essential to attract new people and improve quality of care to older Australians, but when two-thirds of providers are already running at a loss year-on-year, we need the wage increase to be funded by the federal government,” he said.

“If we don’t see urgent action, the aged care workforce crisis is simply going to translate into other serious problems like increased closures, or offsets in other areas such as training or investment in facilities.”

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

LOADING MORE ARTICLE...