Will wage rise affect pensions?

Will the three per cent national minimum wage rise handed down yesterday by the Fair Work Commission have any impact on the Age Pension, which has not seen an increase in the base rate since 2008?

About 2.2 million Australian workers will get an extra $21.60 per week from 1 July, when the minimum wage will be lifted to $19.49 per hour, or $740.80 per week for full-time workers. But is that good news for Australia’s almost 2 million full or part age pensioners who currently receive $349 per week each (with supplements) as a couple and $463 as a single?

The Australian Council of Trade Unions (ACTU) had sought a six per cent or $43 a week minimum wage rise while the Australian Chamber of Commerce and Industry (ACCI) argued that the increase should not exceed 1.8 per cent, saying “wage increases that are not supported by higher productivity or higher prices for consumers, are likely to cost jobs”.

Reserve Bank governor Philip Lowe had lobbied for a 3.5 per cent increase, stating that stagnant household incomes were a threat to consumer spending.

“Many people borrowed assuming their incomes would grow at the old rate and they haven’t,” he said.

“They’re having more difficulty, they’ve got less free cash and so they can’t spend, so this is why I’ve put so much emphasis on the need for a pick-up in wage growth.”

The Age Pension is subject to twice-yearly indexations – in March and September – and Treasurer Josh Frydenberg has committed to a review of the entire retirement income system, including superannuation, pensions and taxation.

Indexation is based on two factors: price increases and male weekly earnings.

Payment rates are indexed to the rise in the Consumer Price Index (CPI) or the Pensioner and Beneficiary Living Cost Index (PBLCI) – whichever is greater.

The CPI measures changes in the prices of a fixed ‘basket’ of goods and services and is updated quarterly. The PBLCI measures the effect of price changes to out-of-pocket living expenses where the main source of income is a government payment. This index is intended to check whether disposable incomes have kept pace with price changes.

After indexation is applied, the payment rate is then benchmarked against a percentage of the Male Total Average Weekly Earnings (MTAWE). The single rate of pension equals 27.7 per cent of the MTAWE and the couple combined rate is equal to 41.76 per cent.

If, once initial indexation is applied, the rate is less than the benchmark of the MTAWE, the payment rate will be lifted to equal the agreed percentage. The benchmarking of pensions to the MTAWE is to ensure pensioners maintain a certain standard of living, relative to the rest of the population.

So, will the minimum wage rise flow through to pensions?

First, the increase applies only to those on a minimum wage – less than 20 per cent of the workforce.

And second, increases of 3.5 per cent and 3.3 per cent respectively in the past two years had little impact on wages across the board and, hence, little impact on the Age Pension.

After last year’s minimum wage rise, this is what some members had to say:

GrayComputing: “It is time for all of us to rant at our MPs and Senators to take action for human decency and a huge stress reduction for pensioners. NO ASSET TEST FOR A PENSION EVER AGAIN! A pension is not welfare.”

SuziJ: “The percentage shouldn’t be just 27.7 per cent, it should be 50 per cent!”

Floss: “The whole system is broken and I very much doubt either side has the will or the brains to fix it, [but] if we don’t we will end up like America – a place I would not like to be.”

GeorgeM: “The OAP should be at least 50 per cent of MTAWE for singles and 75 per cent for couples. We are a resource-rich country which can easily afford it.”

Are you still working and if so, will this have an impact on your weekly budget? Or are you on the Age Pension and hoping there will be a higher increase than usual in September? 

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Written by Janelle Ward

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