The case for reforming Age Pension indexation

YourLifeChoices’ Retirement Affordability Index (RAI) has demonstrated how indexation does not keep pace with reality for many struggling Aussie retirees and those on the Age Pension.

According to the RAI, some of Australia’s most vulnerable pensioners have seen their cost-of-living expenses increase by $1672 in 12 months. Compare that to the latest increase in the Age Pension in March, which increased by $19.60 for singles and $29.40 for couples. 

Analysis by The Australia Institute and YourLifeChoices for the RAI shows that in the previous 12 months, costs for single pensioners who live in rented accommodation have increased by 4.2 per cent in the past year, adding $1117 to their living costs. This easily cancels out any indexed increase in the Age Pension, much less any increases in other costs such as transport and food. 

Costs for renting couples on the Age Pension have increased by 3.9 per cent, or a little over $1600 a year. 

Rent assistance failing to keep up

A payment called Rent Assistance is available for Age Pension recipients who qualify, but it has also not kept pace with rent increases. The payment depends on how much rent the recipient pays, and is calculated that for every $1 of rent above a certain amount you’ll get 75c. 

The increase for a single in the March indexation was $3.92 per fortnight to a maximum payment of $221.20. 

According to Australian Bureau of Statistics (ABS) figures, inflation was steady at 3.4 per cent in the year to January 2024, while rents were up 7.4 per cent.

And before everyone assumes older Australians own their own homes, so it won’t be much of a burden, National Seniors reports more than 325,000 Aussies over 65 rent, and that number is growing.

“The increasing costs of housing continue to bite, particularly rents which, after a small slowdown last quarter, have started to accelerate again,” said Matt Grudnoff, senior economist at The Australia Institute. 

“Rents were up 2.1 per cent for the quarter and 7.8 per cent for the year. The annual increase is the strongest growth in rents for 15 years.”

Energy prices also continue to cause bill stress. According to the government’s own figures, energy prices rose by between 20-24 per cent in 2023. That can represent hundreds of dollars a quarter, yet the energy supplement remains steady at $14.10 a fortnight for eligible recipients. 

How indexation works

The Age Pension is indexed twice a year to the higher of the increase in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI). The PBLCI is for people who are receiving Centrelink payments and is calculated using a different ‘basket’ of products to reflect its customers’ circumstances. The PBLCI is designed to check whether their disposable incomes have kept pace with price changes.

But are we putting the right things in those baskets of goods for the indexes? 

Once upon a time, indexation covered mortgage payments, now it just covers the initial cost of buying a house. 

When mortgage interest rates were excluded from the CPI in the 1990s, mortgage rates were relatively steady and weren’t really an issue for the public. 

However, you’d have to be living under a rock not to notice that with increasing housing costs, mortgage stress is impacting all levels of Australia, not just first homeowners.

According to the Australian Institute of Health and Welfare, there has been a general decline in the proportion of households owning their own home without a mortgage and increases in households with a mortgage and in private rental agreements.

Lagging behind

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.”

There is also a lag between real-time increases and when the data is used and published to set the CPI. That isn’t so bad in a time of general stability, but in times of high price volatility, such as the COVID crisis and ever-increasing energy costs, it will never keep up. The lag time is estimated to be about six months. 

How do you think Age Pension increases could be improved? Why not share your opinion in the comments section below?

Also read: How to save $6000 on your energy bills

Jan Fisher
Jan Fisher
Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.


  1. Indexation should be quarterly and should be based on expenses most pensioners actually have. Primarily that is groceries, transport, energy, health and insurances.
    Housing is separate as costs there vary a lot depending on circumstances so a one size fits all does not work although it needs to be somehow done so everyone gets about the same treatment and benefit.
    All other costs should only have a small impact on indexation.

  2. As one of the Age Pensioners who still have a mortgage, the increases in the Pension Rate have not compensated for the increases in Mortgage Repayments. If you rent, then you get rent relief, but if you have a Mortgage, you get nothing.
    Maybe the Age Pension should be tied to a percentage of the Male Average Weekly Earnings, say 50% and paid to every one over the Pension Age, with any additional income taxed at the appropriate tax rate.

  3. While I agree with David regards expenses, the highest cost for the 350,000 people over 65 who rent, is rent. Most expenses can be curbed by reducing consumption, however when the rent increases and there is no alternative supply, there is no choice but to fork out more dollars forcing people to reduce power consumption, food, transport etc. Surely the government is able to work this out for themselves, though it does make you wonder.

  4. It seems to me that the more government interferes and makes responsible living unrewarding, the poorer the masses get. Maybe it’s time to throw the baby out with the bath water? Make the aged pension universal and generous, but fully tax all retirement income and abolish all special payments for particular groups. Cancel tax concessions on superannuation if the balance is above the average level for the contributor’s age. Restore the notion that people are responsible for their own circumstances rather than rewarding irresponsible life choices. We certainly should support those who suffer sickness or disability, those who devote lengthy periods of their life to caring, and those who suffer a major crisis or trauma, but limiting aged pensions to folk who didn’t save and rent assistance to those who didn’t bother to strive to own a home seems to me to be counter-productive.

    Peter R, I agree to a point, but council rates are also an unavoidable cost. Ours (combined with unavoidable costs for water and septic servicing) consume 12% of our income and will rise again shortly by around 25%. Home insurance can only be reduced by taking more risk of losing our home!! Many home maintenance costs are unavoidable unless we want the house to fall down around us or be unlivable due to health risks. Why should renters be favoured over those who struggled and sacrificed to try to provide for themselves in old age as far as was reasonably possible? Many renters are only renting because they were big and careless spenders in earlier life.

  5. Looking at tonight’s budget, aged pensioners have been forgotten. Couples on the pension would be better off applying to transfer to the now almost identical job-seeker. At least this way both would get the full jobseeker, not a stupid couples version and would therefore get more.

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