Age Pension and social service payments will add $33 billion to government spending over the next four years, Treasurer Jim Chalmers revealed in the October Federal Budget. About one-third, or $11 billion, will be spent on the pension. Big numbers, but what does that mean for you? What does that mean for the next Age Pension increase?
For all those seeking some clarity around the next pension indexation – in March 2023 – this is the probability.
Currently, singles on a full Age Pension with supplements receive $1026.50 per fortnight ($26,689 per annum). This is an increase of $38.90 per fortnight compared with the March 2022 rate. Couples receive $1547.60 ($40,237.60. per annum) – a $58.80 per fortnight increase.
Estimating the next pension increase
Can you expect similar increases in March 2023?
Yes, says Paul Versteege, policy manager at the Combined Pensioners and Superannuants Association (CPSA).
The inflation rate for the last six months of 2022 will be used to calculate the March pension increase, he says.
“That rate is 3.75 per cent, or 7.75 per cent minus the 4 per cent inflation for the six months before that,” he says in a CPSA article.
“This means the full rate single pension will go up by another $37 a fortnight and the full rate couple’s pension by $56 a fortnight, give or take a few cents.
“This would increase the single pension to $1063 and the couple’s pension to $1603 per fortnight.”
However, the estimates depend on the accuracy of the federal Treasury’s inflation forecast for 31 December. If Treasury is wrong, it is likely it will have underestimated – rather than overestimated – inflation.
“In that case, the pension is likely to go up by far more than we’re predicting here,” he says.
So, is that cause for optimism? Given rising grocery costs due to floods and a predicted 50 per cent increase in energy costs over the next year, the buying power of the pension is falling.
National Seniors chief advocate Ian Henschke says the adjustments are merely playing catch-up with inflation. There have also been calls from some pensioner groups for indexation to occur more regularly than every six months.
Mr Versteege says: “Timely pension indexation would fix a lot of pensioners’ cost-of-living problems.”
Who’s struggling the most?
The September quarter cost-of-living figures were released last week. YourLifeChoices has updated its Retirement Affordability Index cost-of-living estimates for well-off, comfortable and cash-strapped couples and singles. The index clearly shows the impact of inflation on household budgets and who’s worse off.
It’s estimated that couple homeowners with private income will now spend $84,393 to maintain their ‘well-off’ lifestyle. Couple homeowners on a part Age Pension can expect to spend $48,787 and cash-strapped couples who rent $41,342. For that cohort, additional funds are required to make ends meet.
Retirees on a fixed income are bearing the brunt of inflation.
Australia Institute senior economist Matt Grudnoff says singles and couples who rent were hardest hit in the September quarter. Costs for couple renters increased 2.2. per cent or 8 per cent for the previous 12 months, and for single renters costs jumped 2.3 per cent or 8.4 per cent for the previous 12 months.
A pay ‘rise’ months after households are already having to cover increased costs is little joy for many.
As Mr Versteege says: “You’ll most probably get big pension increases for some considerable time to come, but they won’t make you better off. They’ll keep you where you are at best.”
Do you have a solution to inflation and Age Pension indexation? Why not share your suggestions in the comments section below?