The Australian Age Pension is reviewed, or indexed, twice a year, with payments adjusted on March 20 and September 20.
A small increase is usually made to both the Maximum Benefit Rate (base rate of the Age Pension) as well as the Age Pension supplement which combine to make up the amount of Age Pension you receive.
The exception to this regular adjustment occurred in 2020, which was the first time since 1996 there was no increase. And there’s a reason for this.
It’s because the rate of the Age Pension and pension supplement is closely tied to two key economic indicators – the Consumer Price Index (CPI) and a ‘basket’ of goods which is called the Pensioner and Beneficiary Living Cost Index (PBLCI).
Here’s how it works.
A decision on indexation is ruled by whichever is the greater of the movement in the CPI or the PBLCI. The increased pension is then ‘benchmarked’ against a percentage of Male Total Average Weekly Earnings (MTAWE). The benchmark rates are 27.7% for singles and 41.76% for couples. Such benchmarking is an attempt to keep the base rate of the Age Pension relative to the average earnings. The pension supplement is separately indexed against the CPI only.
In September 2020, with the initial onset of the Covid pandemic, both major indices went down and so there was no increase to the Age Pension. There were, of course, special Covid relief payments to older Australians during 2020, but no change was made to the base rate of the Age Pension.
The December 2021 quarter saw a 1.3% increase in the CPI, and a year-on-year increase of 3.5%. Since then, supply chain difficulties and workforce shortages have resulted in a marked increase in the price of groceries, fuel and pharmaceutical goods, in particular.
So it would seem, as night follows day, that the combination of an increased December quarter CPI and strong pressure on the pension ‘basket’ will ensure that the Age Pension and supplement will rise on March 20 this year.
That said, the big question is, by how much?
That’s a much harder thing to project. The most recent indexation, in September 2021, meant that for singles the base rate increased fortnightly by $13.90 and the supplement by 90c whilst for couples the increases were $10.50 and 70c for each member of the couple.
Consumer prices are currently increasing far faster than they were in the June quarter last year (the quarter which most affected the September 2021 indexation). This means that an expectation of even higher Age Pension increases than in September 2021 is fair and logical.
But in a year with a federal election and continuing pandemic pressures, anything could happen. Watch this space.
What do you think?
Do you believe the Age Pension will be indexed upwards in March this year? And if so, by how much?
If you are currently living on a full Age Pension, do you believe it is sufficient to cover your household outgoings? Or are prices rising far too quickly for your fortnightly payments to keep up?
Don’t forget Retirement Essentials always reports on any changes to Age Pension entitlements as soon as they are announced. And at any time you can check your entitlements, pension rates and supplements by visiting the Age Pension Entitlements Calculator.