The latest living cost indexes have been released by the Australian Bureau of Statistics (ABS) and give an insight into March 2023 Age Pension increase, which is scheduled to take effect from 20 March.
Base pension rates are indexed to the higher of the increase in the Consumer Price Index (CPI) and the Pensioner and Beneficiary Living Cost Index (PBLCI). These measure changes in prices on a range of goods and services including food, healthcare, fuel, housing costs and utilities costs.
Rates are also compared to a wages benchmark, Male Total Average Weekly Earnings (MTAWE), and increased if necessary.
The inflation rate to the end of 2022 was 7.8 per cent and the PBLCI was 7.4 per cent. That, according to Combined Pensioners and Superannuants Association policy manager Paul Versteege, is good news for pensioners.
He explains: “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 –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, he says. But 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 that has risen strongly.
Mr Versteege explains that in the 59 quarters since the PBLCI started being used, the CPI came out higher than the PBLCI on 26 occasions.
And taking into account the past four pension indexations, the CPI increase was much more than the PBLCI increase on three occasions.
What does that mean? An increase in purchasing power. Mr Versteege estimates that those increases equated to about $15 a fortnight for singles and $23 per fortnight for couples since March 2021.
However, he cautions that 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.”
He advocates pension indexation should occur more regularly than every six months, especially now that the ABS calculates the inflation rate every month rather than every quarter.
How increased living costs affected retirees
Every quarter, YourLifeChoices, in association with The Australia Institute, publishes its Retirement Affordability Index. It delivers the real cost of retirement based on how the latest cost-of-living figures affect six retiree cohorts: self-funded couples and singles who own their home, constrained couples and singles who own their home and receive an Age Pension, and pensioners who rent.
The weekly, monthly and yearly expenditure estimates are telling and essential for retirement and budget planning. They will be available this Sunday.
The ABS reports that living costs for self-funded retiree households rose 2.2 per cent in the December quarter, which was higher than the CPI and the highest quarterly rise since the September 2000 quarter.
Annually, living costs for self-funded retirees rose 7.6 per cent, the biggest annual increase since tracking started in 1999.
Living costs for pensioner households rose 1.7 per cent for the quarter and 7.3 per cent for the year.
That all spells a significant increase in how much you will spend to maintain a comfortable – or better – retirement But check the figures on Sunday.
Do you feel that the purchasing power of the pension or your retirement savings is taking a big hit? Why not share your thoughts in the comments section below?