Signs point to rise in Age Pension

In a little spot of good news for Age Pensioners, the average Australian wage rose in the September quarter to bring the year’s total to 2.3 per cent.

The relevance for pensioners is that their payments play catch-up to any upwards fluctuation in the male average wage.

In a year where inflation, to which Age Pensions are indexed, is less than the increase to the average male wage, payments will be lifted proportionately to close the gap.

This is turning out to be such a year. The Australian Bureau of Statistics (ABS) report for the September quarter put yearly inflation as measured by the Consumer Price Index (CPI) at 1.9 per cent. That rate is struck on fluctuations in the price of a basket of goods and services.

There is another rate that Age Pensions are pegged to and that is the Pensioner and Beneficiary Living Cost index (PBLCI). That index rose by 2.2 per cent for the year in the September quarter.

Whichever of the CPI or PBLCI rose the highest, that is the rate by which pension payments are indexed twice a year – in May and September.

A third measure – Male Total Average Weekly Earnings (MTAWE) – is brought into play to make sure that pension recipients’ incomes keep up with acceptable standards of living.

The difference between this year’s increase in the PBLCI and the average Australian wage is small at just 0.1 percentage points. But the gap between the PBLCI and the average weekly earnings for a ‘male’ is likely to be greater because men as a collective earn more than women, as the latter are often in part-time work.

YourLifeChoices has asked the ABS to single out of yesterday’s statistics the increase in male earnings for the year to September in order that we can have a better idea of the real size of the increase pensioners can expect next time payments are indexed. However, we were told that this information isn’t due to be released for another three months.

This is how a parliamentary document explains how and why Age Pensions are adjusted:

“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.

“They are then ‘benchmarked’ against a percentage of MTAWE. The combined couple rate is benchmarked to 41.76 per cent of MTAWE; the single rate of pension is set at 66.33 per cent of the combined couple rate (which is equal to around 27.7 per cent of MTAWE).

“Benchmarked means that after it has been indexed, the combined couple rate is checked to see whether it is equal to or higher than 41.76 per cent of MTAWE. If the rate is lower than this percentage, the rates are increased to the appropriate benchmark level.

“Indexing pension rates to CPI maintains the real value of pensions over time. The PBLCI measures the effect of changes in prices of the out-of-pocket living expenses experienced by age pensioner and other households whose main source of income is a government payment.

“The PBLCI is designed to check whether their disposable incomes have kept pace with price changes.

“The MTAWE benchmark is not intended to maintain the value of the pension relative to costs; it is seen as ensuring pensioners maintain a certain standard of living, relative to the rest of the population.”

Do you believe the slight increases to the Age Pension this year have helped you keep up with rising living costs? How much extra a year would your Age Pension need to be in order that your living expenses were adequately covered?

Written by Olga Galacho

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