The Age Pension increase delivered in March was the biggest since 2013 and the increase that’s set to take effect next Tuesday is the biggest in 12 years.
So pensioners are sitting pretty, right?
Next week’s increase gives singles an extra $38.90 a fortnight and couples an extra $58.80 a fortnight. Combined with the previous half-yearly increase – $20.10 for singles and $30.20 for couple per fortnight – that’s a climb of 6.1 per cent in 2022 and takes fortnightly payments, with supplements, to $1026.50 for singles and $1547.60 for couples.
A welcome boost, but the Reserve Bank of Australia is forecasting inflation will rise 7.75 per cent by the end of the year. So pensioners are still slipping behind and, as explained by The Australia Institute senior economist Matt Grudnoff, they’re not enjoying the same rise in living standards afforded most other Australians.
That is due to essential and non-essential spending and how different households spend their money.
Mr Grudnoff told YourLifeChoices earlier this year that the Australian Bureau of Statistics (ABS) splits price movements into essential and non-essential spending.
“Essential spending includes such things as housing, clothing and groceries and is rising much faster than non-essential spending,” he said.
“This affects those on lower incomes more, as they use a larger proportion of their incomes to buy the essentials in life. As a result, retirees on lower incomes are most affected by price increases.”
Read: September increase biggest in 12 years
Combined Pensioner and Superannuants Association policy manager Paul Versteege explains that indexation in its current form dates back to 2009, when a third component, the Pensioners and Beneficiaries Cost of Living Index (PBLCI), was added by the Rudd government.
The addition of the PBLCI was designed to check whether disposable incomes had kept pace with price changes, says Mr Versteege.
Currently, pensions (including the Age Pension, Service Pension, Disability Support Pension and Carer Payment) are indexed twice each year by the greater of the movement in the CPI or the PBLCI. The outcomes are then benchmarked against a percentage of the Male Total Average Weekly Earnings (MTAWE).
But that hasn’t been used for some time, because wages haven’t been going up enough, he says.
Read: Age Pension system ‘failing’ nine in 10 retirees
Mr Versteege says pension increases are playing a game of catch-up.
Recent increases compensate pensioners for the loss of purchasing power over the six months prior to indexation, he says, but during those six months people had to cope, unaided, with a loss of purchasing power.
“One of the things … a review should look at is what structurally can be done to prevent social security recipients having to cover cost-of-living increases in the months before indexation.”
National Seniors Australia chief advocate Ian Henschke says pension indexations should occur more frequently.
“It’s like the hare and the tortoise, no sooner do we try to get ahead of the cost of living and any increase has already been gobbled up by soaring inflation,” he says.
“Clearly, adjusting the pension twice a year when we have runaway inflation is not fair.”
Read: Pension work test changes: Seniors can earn more before penalties
The OECD (Organisation for Economic Co-operation and Development) reports that the poverty rate among older Australians is 23 per cent – 10 percentage points above the average of OECD countries.
But there are positives for Australia’s pensioners.
New work rules mean pensioners will temporarily be able to earn $11,800 this financial year – up from the usual $7800 – before the Centrelink income test kicks in and they start losing payments at the rate of 50 cents per dollar of wages collected. But that is only temporary – at this stage.
And there’s a chance that older Australians may get some extra assistance in the October Budget, although Treasurer Jim Chalmers says adding extra cash and stimulus measures into a hot economy is to be avoided.
Is it time for a thorough review of how the Age Pension is indexed? Do you have any ideas on how to improve the system? Why not share your thoughts in the comments section below?