On 20 March and 20 September of each year, the age pension rates are increased.

The age pension is indexed at these times during the year to ensure the pension maintains its real value over time. In simple terms, these increases ensure the age pension preserves the same purchasing power as the cost of living increases.

So, how does the government decide how much to increase the age pension by?

The indexation of the age pension rate is a complicated process and uses a number of indices.

The Consumer Price Index (CPI), the Pensioner and Beneficiary Living Cost Index (PBCLI) and the rate of the couple age pension are benchmarked against 41.76% of the Male Total Average Weekly Earnings (MTAWE), with the single rate of age pension benchmarked against 66.33% of the couples rate of the age pension. I did say it was complicated.

In the wake of the current economic recession, the question on people’s mind is, “will the age pension be increased next week on 20 September?”

I believe it will not be increased unless the government decides to override the current process of indexing the pension subject to the indices I have mentioned.

The reasons for my belief are:

• there have been a 1.9% decline in the CPI and a similar percentage decline in the PBCLI, and
• as the pension still remains above the benchmark set in relation to the MTAWE, there would be no increase in the age pension.

I should mention that this is not the first time there has not been an increase in the age pension. As a result of a decline in the CPI between December 1996 and June 1997, there was no increase in the age pension in September 1997.

There is one small piece of good news that comes from no increase in the age pension.

Residents in an aged care facility should see no increase in the basic daily fee of $52.25. This fee is benchmarked to 85% of the basic age pension, so logic would dictate that if there is no increase in the age pension, there should be no increase in the basic daily fee.

Importantly, even though the indices have declined, the Social Security Act does not allow for any decrease in age pension to reflect the fall in the CPI and the PBCLI.

I am not going to try and argue the pros and cons of the process. Still, I believe it is essential for age pensioners to understand the process, and that if they had been relying on the increase, even though generally small, it is not going to happen on 20 September.

The beginning of the financial year is always a good time to review your financial position and your budgetary needs for the following 12 months. If you have done this in July and have factored a small increase in age pension from September, you may need to review your position and makes some minor changes.

If you do have concerns or questions, make sure you do speak to someone.