Nearly three-quarters of Australian retirees will receive a ‘pay rise’ on 20 September when the Age Pension is next indexed. This indexation occurs twice a year, on 20 March and 20 September. It is the method by which the payment rates of the Age Pension are kept ‘real’ in terms of inflation, cost of living and movements in wages.

The three key components of indexation are:

• Consumer Price Index (CPI) 

• Pensioner Beneficiary Living Cost Index (PBLCI) 

• Male Total Average Weekly Earnings (MTAWE)

By keeping up to date with this data, we can fairly accurately predict the indexation weeks before it comes through. Based upon the latest metrics, our calculations suggest a 3.2% increase.

Let’s look at each of the above components of Age Pension indexation to explain how this works.

Consumer Price Index (CPI)

This is a measurement of selected consumer prices over the past month, six months and year. The increase that is used for September indexation is the same for both CPI and PBLCI, the six months change between December 2022 – June 2023. During this time the CPI rose by 2.2%.

Pensioner Beneficiary Living Cost Index (PBLCI)

Living Cost Indexes (LCIs) measures the price change of goods and services and its effect on living expenses of selected household types. The PBLCI measures the living costs for Age Pensioners and other ‘government transfer’ recipient households, i.e. households that source most of their income from government pensions. Over the indexation period (December 2022 – June 2023) the PBLCI rose by 3.2%

Male Total Average Weekly Earnings (MTAWE)

This index measures the six-monthly movement in the average weekly ordinary time earnings of full-time adults, seasonally adjusted. Essentially a couple’s full Age Pension amount must be at least 41.76% of MTAWE.  Age Pension rates have actually grown faster than MTAWE over recent years and this measure hasn’t impacted Age Pension indexation for 14 years. 

Read full article from ‘Retirement Essentials’ here