5.1.8.50 Common provisions affecting indexation of pensions

Background

Most payments as well as various thresholds and limits referred to in the SSAct are indexed in accordance with movements in the CPI produced by the ABS. Most of the indexation provisions can be found in Part 3.16 of the Act.

The ABS releases values of the CPI and of movements in the CPI for each quarter of the year. Different payments, thresholds and limits in the SSAct are indexed on different dates, with different frequencies and by movements in the CPI over different periods of time.

While some amounts in the Act are directly indexed using the CPI, others are not directly indexed but are mathematically calculated or derived from amounts which are directly indexed. After being indexed and benchmarked (see below), most amounts are also rounded to some degree.

Indexation of PPS

The annual MBR of PPS is indexed on 20 March and 20 September of each year. On 20 March it is normally indexed by the movement in the CPI over the 6 months from the previous June to the previous December. On 20 September it is normally indexed by the movement in the CPI over the 6 months from the previous December to the previous June.

If the annual MBR of PPS after CPI indexation is still less than 25% of the annualised MTAWE figure, then that rate of PPS is increased to equal 25% of the annualised MTAWE figure. The following MTAWE figures are normally used:

• on 20 March each year, the MTAWE figure for the previous November, and
• on 20 September each year, the MTAWE figure for the previous May.

Indexation of other social security pensions

MBRs of social security pensions, other than PPS, and maximum rates of pension supplement are also indexed on 20 March and 20 September of each year. On 20 March, they are normally indexed by the movement in the CPI over the 6 months from the previous June to the previous December. On 20 September, they are normally indexed by the movement in the CPI over the 6 months from the previous December to the previous June.

Before 20 September 2009

Prior to 20 September 2009, MBRs of all social security pensions (including PPS) were indexed by the movement in the CPI. If the maximum single basic rate of pension after CPI indexation was less than 25% of MTAWE, then it was further topped up to equal 25% of MTAWE. The maximum partnered basic rate of pension was also topped up proportionally.

When benchmarking pensions to 25% of MTAWE, the following MTAWE figures were normally used:

• on 20 March each year, the MTAWE figure for the previous November, and
• on 20 September each year, the MTAWE figure for the previous May.

On 20 September 2009

On 20 September 2009, MBRs of the following pensions were indexed by the greater of the movement in the CPI and the movement in the Pensioner and Beneficiary Living Cost Index (PBLCI) over a period similar to that for the CPI:
(a) age pension
(b) DSP of a person who has turned 21 or of a person who has not turned 21 and has one or more dependent children
(c) wife pension*
(d) carer payment
(e) bereavement allowance*, and
(f) widow B pension*.

On 20 September 2009, PBLCI indexation directly applied to the basic rates, for all family situations, of the above pensions.

The CPI produced by the ABS is a widely used economic indicator which provides a general measure of changes in the prices of consumer goods and services purchased by Australian households. PBLCI, also produced by the ABS, is a measure of the effect of changes in prices on the out-of-pocket living expenses of a subgroup of the Australian population: age pensioner households and other government transfer recipient households.

Benchmarking to 25% of MTAWE also occurred on 20 September 2009.

On top of the above increases in pensions, for all family situations, resulting from CPI and PBLCI indexation and MTAWE benchmarking, the MBR of pension was further increased on 20 September 2009 by $1,560 per year or $30 per week for pensioners in the following family situations:

• not a member of couple
• member of an illness-separated couple
• member of a respite care couple, and
• partnered (partner in gaol).

This increase was made directly to only the social security pensions listed in (a) to (f) above.

From 20 September 2009, pensioners in the family situations above received a MBR equal to 66.33% of that paid to a couple combined.

* WP, BVA, and WidB ceased on 20 March 2020.

After 20 September 2009

On pension indexation dates after 20 September 2009, the pensions mentioned above continue to be indexed by the greater of the movement in the CPI and the movement in PBLCI. However, instead of directly indexing the MBRs for all family situations, as occurred before and on 20 September 2009, only the combined couple MBR is directly indexed by the greater of the movement in the CPI and the movement in PBLCI. MBRs for other family situations are no longer directly indexed but are mathematically derived from the maximum combined couple MBR so that the new single to couple ratio of 0.6633 for the maximum combined couple MBR is maintained over time and after indexation.

The MTAWE benchmark increased with effect from 20 March 2010. The combined couple rate of maximum basic pension, rather than the maximum single basic pension, is now benchmarked to 41.76% of MTAWE. Where, after CPI and PBLCI indexation, the maximum partnered basic pension is further increased to equal half of 41.76% of MTAWE, maximum basic pension rates are calculated for the other family situations listed below by applying the corresponding percentage listed below to the combined couple rate of maximum basic pension after benchmarking.

Through these arrangements, the maximum single basic pension is effectively benchmarked to around 27.7% of MTAWE (i.e. 0.6633 × 41.76) on and after 20 March 2010.

Maximum transitional pension rates

Like other pension rates, maximum transitional pension rates are indexed on 20 March and 20 September each year. However, unlike the maximum basic pension rates described earlier in this topic, they are indexed by the movement in the CPI only. They are not subject to PBLCI indexation nor are they benchmarked to any percentage of MTAWE.