Indexation of income support pensions and allowances

This page describes the indexation of Income Support pensions, payments and allowances. It covers how and when the indexation is calculated and applied.

Indexation of pensions and allowances

Pensions and allowances are adjusted to maintain their value against increases in the cost of living. Indexation occurs in line with increases in the Consumer Price Index (CPI), either yearly or twice yearly.

The Pensioner and Beneficiary Living Cost Index (PBLCI) is used to adjust maximum basic rates of pension where movement in the PBLCI is greater than movement in the CPI for an indexation period.

In addition to CPI and PBLCI indexation, some pensions, or components of pensions, may also be adjusted in line with the average income of wage and salary earners, measured by Male Total Average Weekly Earnings (MTAWE).

What is the CPI?

The CPI provides the official measure of inflation in Australia. It is calculated by the Australian Bureau of Statistics.

The CPI measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households).

The CPI is calculated for the 3 month periods ending 31 March, 30 June, 30 September and 31 December each year.

What is the PBLCI?

The PBLCI specifically measures increases in the cost of living experienced by pensioner and beneficiary households. The PBLCI is calculated by the Australian Bureau of Statistics.

The PBLCI is similar to the CPI in that it measures quarterly changes in the retail price of a basket of goods and services. The basket of goods and services used for the calculation of the PBLCI has been specifically compiled based on a pattern of household expenditure for households where the principal source of income is from government pensions and benefits.

The PBLCI is calculated quarterly on the same basis as the CPI (refer to the section on page 1 titled ‘What is the CPI?’).

What is MTAWE?

MTAWE is a measure of the Male Total Average Weekly Earnings paid in Australia in the measurement period. MTAWE is calculated by the Australian Bureau of Statistics.

MTAWE is calculated from the average before tax earnings of all male employees (including part-time employees and any overtime payments). It is calculated by dividing an estimate of the male gross weekly total earnings (before tax deductions) by the number of male employees.

What is the MBR factor?

Several income support and compensation payments are legislated to be indexed by the same proportional increase as the increase in the single maximum basic rate (MBR) of service pension.

The pension MBR factor equals:

Current annual ‘not a member of a couple’ MBR amount divided by the previous annual ‘not a member of a couple’ MBR amount. For example: $27,224.60  ÷  $26,535.60 = 1.026.(MBR factor).

The old rate of payment is multiplied by the MBR factor resulting in the new rate of payment. The following income support and compensation payments are indexed by the MBR factor:

• Maximum Basic Rate of veteran payment
• Ceiling rate of income support supplement
• Ceiling rate of veteran service pension
• Domestic allowance (part of the war widow/widower pension)
• Disability Compensation Payment.

How is the service pension indexed?

Service pension is legislated to keep pace with MTAWE.

The MBR is first increased in line with movements in the CPI and the PBLCI. The index that shows the higher increase is used to increase the MBR of the ‘combined couple’ rate of pension. The ‘combined couple’ rate is then compared to 41.76% of MTAWE, and increased if necessary to equal that amount. The ‘not a member of a couple’ rate of pension is then fixed at 66.33% of the ‘combined couple’ rate.

This process ensures that your pension reflects increases in both the cost of living and wages.

The pension supplement is indexed in line with movements in the CPI only.

Indexation dates of pensions, allowances and thresholds

Pensions, allowances and thresholds are adjusted either yearly or twice yearly. They are indexed on the same date every year. The indexation factor is calculated by comparing the CPI number for the reference quarter (usually the most recent quarter) by the CPI number for the base quarter (usually either six or twelve months before the reference quarter). The reference and base quarters that are used for each payment type are determined by legislation. After indexation, the rates are ‘rounded’ in accordance with legislation.

The following table shows the dates that income support pensions, allowances and thresholds are indexed each year, the type of indexation and the reference and base quarters used:

*Note: - Indexation of war widow’s/widower’s pension and Disability Compensation Payment are not described here, as they are not income support payments.