No September Age Pension Increase this Year

December 16, 2020

Age Pension payment rates are usually increased every six month – on 20 March and 20 September – to maintain their real value over time. On 20 September 2020, for the first time in more than 20 years, the Age Pension rates did not increase. This is due to the method of pension indexation, and not a policy decision by the Government.

Pension indexation

Age Pension rates are indexed, so they maintain the same purchasing power as costs of living increase. This is done by adjusting the payment rates in line with movements in the Consumer Price Index (CPI) and the Pensioner and Beneficiary Living Cost Index (PBLCI). The CPI is a measure of changes in the price of a fixed basket of goods and services. The PBLCI has been developed to better reflect the parcel of goods usually bought by pensioners. The Pension rates are indexed by the higher of the CPI or PBLCI over the previous six months. In addition to CPI and PBLCI, the combined pension rate for a couple is also benchmarked to 41.76% of the Male Total Average Weekly Earnings (MTAWE) and the single rate of pension is effectively benchmarked against 27.7% of MTAWE. MTAWE measures the level of average earnings for males.

Why no increase?

A CPI decline of 1.9 per cent and a PBLCI decline of 1.4 per cent in the June 2020 quarter means that the factors used to calculate Age Pension adjustment on 20 September 2020 were below one. The Social Security Act 1991 specifies that in such a situation the payment rates are just maintained and do not decrease. In this instance, the MTAWE increase did not impact the adjustment, as the Age Pensions rates were above the relevant MTAWE benchmarks.

Has it happened before?

This situation is unusual but not unprecedented. Last time Age Pension rates were not increased through indexation was in September 1997 and before that in September 1992 and September 1991. On 23 July 1931, the Age Pension was reduced from $104 to $91 per year and then to $78 per year on 13 October 1932.