Understanding Age Pension increases and…
…do they cover the cost of living?
A couple of weeks ago we reported on the September 20 Age Pension increases. This is one of two increases that occur each year with the next one scheduled for March 20 2025.
We always receive tons of comments on the amount of the increase with the majority claiming it doesn’t meet the increased cost of living. It doesn’t keep up with rent increases, or insurance costs, or interest rates for those with a mortgage etc are among the comments we typically hear. So this week we decided to write an overview of how the increase is actually calculated.
How is the increase calculated?
Government pensions are indexed to the higher increase between the consumer price index (CPI) and the Pensioner and Beneficiary Living Cost Index (PBLCI). For the 6 months to June 30 2024 the CPI increase was 2% while the PBLCI was 2.6% so Age Pensioners benefitted by having the higher PBLCI applied to their Age Pension increase. If the CPI had been higher, then the CPI would have applied. The amount of the increase is then compared to average male income and adjusted to ensure that pension rates ‘do not fall behind community living standards.’ The couple’s maximum pension must be at least 41.76% of Male Total Average Weekly Earnings.
So what is the difference between the CPI and the PBLCI?
Both indexes measure changes in the price of a basket of goods and services over time, designed to be representative of average household expenditure. They are calculated using price changes within each capital city only and cannot be used to compare differences between regions. The difference is in the weighting of the goods within the basket. One big difference is that the PBLCI includes mortgage interest charges but does not include new house purchases, while the CPI includes the cost of new house purchases but does not include mortgage interest charges. The following table has a summary of the major categories of expenditure and how they are weighted in each index.
| Category of expenditure | 2024 Weighting for CPI | 2024 Weighting for PBLCI |
| Food and non-alcoholic beverages | 17.15% | 17.09% |
| Alcohol and tobacco | 6.98% | 7.09% |
| Clothing and footwear | 3.4% | 3.42% |
| Housing | 21.74% | 13.08% |
| Furnishings household equipment and services | 8.43% | 8.28% |
| Health | 6.43% | 6.09% |
| Transport | 11.42% | 10.69% |
| Communication | 2.14% | 2.06% |
| Recreation and culture | 12.55% | 12.11% |
| Education | 4.34% | 4.11% |
| Insurance and financial services | 5.43% | 16% |
| Total | 100% | 100% |
Most of the weightings are quite similar but you will notice the two big differences. Housing (which includes rent) is much higher in the CPI at 21.74% versus the PBLCI at 13.08%. This is because the CPI includes new dwelling purchases and the PBLCI does not. So rapidly rising house prices will affect the CPI much more than the PBLCI. The other big difference is with insurance and financial services. These are only 5.43% of the CPI but a very large 16% of the PBLCI. The main difference within this is interest charges such as on a mortgage which are included in the PBLCI but not the CPI.
The indexes make a good attempt to adjust for the cost of living for older Australians but they aren’t perfect. Rents for example are only 6.03% of the CPI and 6.34% of the PBLCI. This reflects the total community where much of the population are not renting so it has a relatively small weighting. But a renter today will typically say rents are a much much bigger part of their expenditure than 6%. It is estimated that the average renter spends between 26-38% of their income on rent. Much much higher than the 6% in the CPI weighting.
It’s clear everyone’s circumstances are different and one size definitely doesn’t fit all.
The other problem is that the indexation increases for September 20 are based on price movements in the March and June quarters. They don’t reflect what is happening right now.
Is there a better way to do it?
It takes time to take these changes into account and apply newly indexed rates for millions of recipients who will expect these changes reflected in their fortnightly pay packets as of the following pay day. We probably need to cut Services Australia some slack here.
But is there a better way to more closely tie the Age Pension to actual price increase in the here and now? And make it better reflect the cost of living changes for people in very different circumstances?
If so, we’d love to hear it!
What are your thoughts? Is it possible to reduce the time lag when indexing payments for nearly four million Australians? Can we do better?
And can you do better for yourself?
In addition to the rate increases the thresholds have increased meaning many people previously ineligible will qualify for at least a part Age Pension. You can stay up to date with how much Age Pension you should be receiving right now on our free eligibility calculator. Our calculator will be updated with the new rates and thresholds from Friday 20th September. You can also look at changes you might be able to make to help improve your eligibility or the amount you are entitled to receive. One of our Maximising entitlements consultations is a good place to start.
why is it that when we get a pension rise they give us a rent assistance rise and take some of our pension rise back. good old gov give on one hand take back on the other..
Pension payments never keep pace, it is a waiting game and you know this will always be the case, in this day and age rentals are a killer! Rentals rise much faster than the pension!
When you pay $490.00 rent per week & you live fully off the pension it certainly is nowhere near your living costs of gas, electricty, chemist ( everything is NOT on the free list) food, petrol & they say you must keep some hobbies so you don’t become isolated & they have a fee attached . It’s a joke & the government are not listening on there big salaries
The high inflation has increased the pressure of life, the pension is not enough cover daily expenses, and the recreational travel and social activities are reduced. I hope government can provide better services for the elderly.
Thanks.
What’s the real “increase”? Morrison gave nothing back in September 2020 so pensioners are actually further behind. Every business & government in Australia are fully aware of any increases & their prices are adjusted accordingly. Does everyone else show their payment details publicly? Stupid system run by stupider people.
Considering that many wage earners aren’t getting wage increases of such percentages, perhaps we could all be a bit more grateful?
so if you are on a part age pension, do you get the full increase or just a pro-rata ? Thanks.
How are people meant to survive, let alone live well on $430 dollars a week. Pensioners have been tax payers all their working lives. Then there is a restriction on what you can earn if working which makes it almost impossible to find acceptable work. If you work you pay income tax anyway. It’s an unfair system.
Perhaps the pension could be adjusted quartile to reflect increases closer to reality (ie: 3 months behind instead of the current 6 months behind). Smaller increases more often would alleviate some living stresses.