Secure and Sustainable Pension Reform: A pension that keeps up with the cost of living
New indexation arrangements will better reflect cost of living increases for pensioners as part of the Government’s Secure and Sustainable Pension Reform.
A new Pensioner and Beneficiary Living Cost Index (PBLCI) will be developed by the Australian Bureau of Statistics specifically designed to reflect changes in the cost of living experienced by pensioner and beneficiary households.
Pensioner households can face cost of living changes which are different to those measured by the mainstream Consumer Price Index (CPI).
For example age pensioner households are estimated to spend 21.1 per cent of their household budgets on food, compared with 15.4 per cent for other households.
Analysis undertaken as part of the Harmer Review found that at certain times, the rates of change in the out of pocket living costs experienced by age pensioner households have moved faster than the rate of changes in the living costs of households as measured by the CPI.
A specific index which reflects cost of living changes for pensioners will ensure pension increases take account of costs appropriate to pensioner households.
From 20 September 2009, this new index, in addition to the CPI, will be used to adjust base pension rates, including Veterans’ pensions. The base pension rate will be adjusted by whichever is the greater of CPI or the new PBLCI.
Pension rates will continue to be benchmarked to community living standards as measured by wages, using Male Total Average Weekly Earnings. As a result of the substantial pension increases, the wages benchmarked rate will increase for singles from 25 per cent to 27.7 per cent of Male Total Average Weekly Earnings, an increase of more than 10 per cent. This new benchmark will be enshrined in legislation.
The new PBLCI will enable pensioners to receive a more adequate and sustainable payment to help with their every day needs. It delivers the Australian Government’s election commitment to index pensions by a measure that best reflects their living costs.
The new index will cost an estimated $18.5 million over four years to develop and maintain, and will be updated every six months.
The changes are part of the Government’s Secure and Sustainable Pension Reform delivering a stronger and fairer pension system and providing security and sustainability into the future.