Indexation

The pension indexation issue

20181205-Indexation-graph-to-end-September-2018

Commonwealth superannuation pensions have been indexed by the CPI since the late 1970s.  The inadequacy of the CPI as an index for pensions was recognised more than a decade ago when the government replaced it as the Age Pension indexation tool with a wage-based indexation arrangement.  That was done to ensure that Age Pensions were increased to reflect the actual prices consumers had to pay.  In the past 27 years, the Age Pension has rightly increased by almost 202%.  In the same period, Commonwealth superannuation pensions have increased by 104%.

Commonwealth superannuation pensions (CSS) at 30 June 2017 averaged about $34,965, or $4,318 over the Henderson poverty line; the average PSS pension as at 30 June 2017 was $29,913 or $734 below the Henderson poverty line.

Three Senate Inquiries ignored

Three Senate Inquiries since 2001 have recommended fair, wage-based pension indexation for former government employees, but both Coalition and Labor governments have refused to accept the recommendations.  Successive governments have therefore breached an employment contract with the more than 300,000 former Federal and Territory public servants and, until July 2014, former Defence personnel. The Coalition did honour a pre-election promise to provide fair pension indexation to some military superannuants, i.e. members of the DFRB and DFRDB schemes aged over 55 years.  However, military MSBS members were denied the same fair pension indexation like all members of the various civilian schemes.

No other employer would get away with such a blatant breach of an employment contract.

Why the CPI should not be used to index pensions and other payments

For over twenty years, the CPI has been adjusted downwards wherever there has been an improvement in a product or service in the CPI basket of goods.  Upwards adjustments are also made where there has been any product degradation but these adjustments are mostly far fewer than downwards adjustments.  That means that the CPI does not reflect the actual prices we pay for goods and services.

For example, if the latest model washing machine has increased in price, it is compared to the model it has replaced to see if it has any improvements compared to the previous model.  If it has any improvements, the price increase reflected in the CPI is adjusted downwards by the estimated value of the improvement(s).  So, if for example the current model has increased in price by 4% and it is ascertained that the improvements account for half of the 4% total price increase, the CPI will only reflect a 2% price increase.  The trouble is, if you can’t buy the superseded model, then your pension hasn’t been adequately increased to meet the new price!

The economic rationale behind this downward adjustment to the CPI is that when comparing the price movements of the goods and services in the CPI basket, one must compare like with like to obtain a true estimate of price inflation.  Whilst that reasoning is difficult to dispute in a purely economic sense, it means that the use of the CPI alone to adjust pensions is inadequate and unfair, because the CPI does not reflect the prices consumers pay.

That is why Commonwealth superannuants are going backwards while the Australian economy is going forward!

How you are affected

If for example you retire on a $30,000 a year pension, after twenty years you will be receiving $15,000 p.a. less pension than you would have received had your pension been indexed fairly by an index that reflects the prices you actually pay.  In that same twenty year period, you will have lost $127,000.  Can you afford that?

Try it for yourself!

If you are already retired and want to know by how much you have already been robbed, go to our Indexation Tool and simply enter in three numbers – it’s as easy as that.  But be prepared for a shock!

Tired of being treated like a second class Australian?  Join our campaign for fair indexation today.

Indexation graphs

SCOA updates the indexation information at the end of each quarter.

The indexation graphs can be viewed or downloaded in the table below.

SCOA’s indexation campaign and other downloads you might find useful

We invite you to join with us in our pursuit for a fair pension indexation and have suggested some actions you might take in the documents below.

If you require further information about these issues you are welcome to call SCOA Australia on 02 6286 7977.