The Age Pension is indexed twice a year, March and September, and benchmarked to whichever is higher of the Consumer Price Index (CPI) and the Pensioner and Beneficiary Living Cost Index (PBLCI).
The CPI covers all Australians, but the PBLCI specifically measures changes in the cost of living experienced by pensioner and beneficiary households. It does this by giving different ‘weighting’ to the basket of goods and services sampled. For example, education is valued higher in the CPI than the PBLCI as it is assumed PBLCI households don’t have as much responsibility for these costs.
But is the system working?
Even the government is ambivalent about the CPI’s accuracy for measuring household costs, saying: “The CPI is often used to measure changes in the cost of living, but it is not an ideal indicator of this.”
Time lag
There is also a lag between real-time price increases and when the data is used and published to set the CPI. That can be particularly damaging in times of price volatility such as during COVID and ever-increasing energy costs. The lag can be up to six months.
Another problem is that interest payments on a mortgage were removed from the ‘basket’ of goods in the 1980s and replaced with the price paid on a house.
This wasn’t such an issue a decade or so ago when most retirees owned their own houses outright, but now more than half of retirees and older workers have a mortgage. With interest rates soaring last year, and interest rates indexed each month, while the Age Pension is only twice a year, the effect on many older Australians has been crushing.
It is expected the Age Pension will be indexed to just under 2 per cent for the March increase.
National Seniors (NS) chief executive Chris Grice says there is a case to rethink how the pension is indexed.
“We believe the pension should be indexed quarterly, especially for those reliant on the Age Pension and struggling to cover basic necessities such as food, fuel, electricity and rent. How often is as important as how much,” Mr Grice says.
National Seniors would also like to see more support for pensioners.
“The federal government should introduce a Pensioner Concession Card+ on top of the existing Pensioner Concession Card,” Mr Grice said.
“This targeted card would provide additional concessions and support to pensioners living in poverty.
“This would be a cost-effective way to deliver much-needed cost-of-living supports such as our proposed Seniors Dental Benefit Scheme.”
Time for rethink
National Seniors is currently conducting a campaign to establish a dental scheme for older Aussies, similar to the Child Dental Benefits Schedule, which covers part or the full cost of some basic dental care if the family is on certain Centrelink payments.
Mr Grice said as well as indexing the Age Pension quarterly, there should be a rethink on deeming.
“The government should continue the freeze on deeming rates for a further 12 months while inflation remains high,” he said.
“The deeming rate is set to lapse on 1 July 2024, affecting part-pensioners, Commonwealth Seniors Health Card holders and people who contribute to aged care costs.
“This time should be used to reset the deeming policy to create a fair and transparent deeming method.”
Do you think the Age Pension should be indexed more often? What would be your preferred schedule? Why not share your opinion in the comments section below?
Also read: Older Aussies howl down the expected Age Pension increase