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Effect of Negative CPI, PBLCI or MTAWE

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Last amended: 15 August 2013

Effect of negative CPI or PBLCI growth on pension

    

If the Consumer Price Index [glossary:(:]CPI[glossary:):] or [glossary:Pensioner and Beneficiary Living Cost Index (:]PBLCI[glossary:):] figure for the reference quarter is less than the figure for the base quarter, the indexation factor calculated under that index is set to equal 1. If the indexation factor under both CPI and PBLCI is equal to 1, there will be no CPI or PBLCI increase to pensions, allowances, thresholds or limits for that period. The amounts will not reduce. For the maximum basic rate [glossary:(:]MBR[glossary:):] of service pension, if the comparison of the CPI and PBLCI figures results in no increase, the MBR may still be increased by Male Total Average Weekly Earnings [glossary:(:]MTAWE[glossary:):] benchmarking.

Effect of negative growth in MTAWE on pension

The use of MTAWE in the indexation process does not change when there is a reduction in MTAWE. However, a reduction means that the CPI or PBLCI indexed rate will not need to be further topped up to the MTAWE benchmark.

Positive CPI or PBLCI growth after a period of negative growth

    

Following a period of negative CPI growth, amounts that compare the reference quarter CPI to the previous base quarter will receive a greater benefit than those that compare the reference quarter CPI to the previous highest base quarter. This is because those that compare to the previous base quarter CPI receive the benefit of part of the increase twice – once for each time the CPI increases to a particular point. The distinction does not arise for PBLCI as the base quarter for indexation using PBLCI is only ever the previous highest quarter.

Example of impact of negative CPI growth followed by positive CPI growth

This hypothetical example shows the impact of positive CPI growth after a period of negative CPI growth. To show the impact more clearly, rounding rules have not been applied. The CPI figures are assumed to be 150 in March 2006, 145 in March 2007 and 152 in March 2008.

Threshold/limit

1 July 2006 rate

1 July 2007 rate

1 July 2008 rate

CPI increase 1 July 2008

% increase from 1 July 2006

Amount A – base quarter = previous quarter

$10,000.00

$10,000.00

$10,482.76

152 ÷ 145

4.82%

Amount B – base quarter = previous highest quarter

$10,000.00

$10,000.00

$10,133.33

152 ÷ 150

1.33%

The rates for 1 July 2007 remain the same because the CPI for the reference quarter (145 – March 2007) was less than for the base quarter (March 2006). In calculating the indexed rates for 1 July 2008, the base quarter for Amount A is the March 2007 quarter CPI of 145, whereas for Amount B, the base quarter is the March 2006 quarter CPI of 150. Thus Amount A receives the benefit twice of the CPI moving from 145 to 150, whereas Amount B only receives this benefit once.


The consumer price index (CPI) provides the official measure of inflation in Australia. 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 consumer price index (CPI) provides the official measure of inflation in Australia. 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 Pensioner and Beneficiary Living Cost Index (PBLCI) is used to adjust the maximum basic rate (MBR) of pension where movement in the PBLCI is greater than movement in the consumer price index  (CPI) for the relevant indexation period. The PBLCI specifically measures changes in the cost of living experienced by pensioner and beneficiary households to ensure that pension rates keep up with the changes in their cost of living. Movements in the CPI will be compared to movements in the PBLCI and the pension MBR will be indexed in line with the higher of these two indexes before benchmarking to male total average weekly earnings (MTAWE).

 

 

The reference quarter is the more recent of the two quarters of CPI or PBLCI data used in indexing a payment rate, limit or threshold. The reference quarter CPI or PBLCI figure is compared to the base quater CPI or PBLCI figure to determine the indexation factor to be applied. The reference quarter is defined in the legislation and varies according to the amount being indexed.

 

 

The base quarter is the older of the two quarters of CPI or PBLCI data used in indexing a payment rate or limit or threshold. The reference quater  of the CPI or PBLCI figure is compared to the base quarter CPI or PBLCI figure to determine the indexation factor to be applied. The base quarter is defined in the legislation and varies according to the amount being indexed.

 

 

According to Schedule 6-B1 of the VEA a MBR is the person's maximum rate is ascertained at the date of grant of the designated pension, and is the maximum annual pension rate payable at the date of grant (excluding allowances).

 

 

According to Schedule 6-B1 of the VEA a MBR is the person's maximum rate is ascertained at the date of grant of the designated pension, and is the maximum annual pension rate payable at the date of grant (excluding allowances).

 

 

A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.

MTAWE is an amount set by the Australian statistician and published in a document called 'Average Weekly Earning, States and Australia'. Section 59EA of VEA specifies that certain income support indexed amounts are increased in line with increases in MTAWE. The first MTAWE increase of $6.80 per fortnight in the single rate of service pension occurred on 26 March 1998.

 

 

MTAWE is an amount set by the Australian statistician and published in a document called 'Average Weekly Earning, States and Australia'. Section 59EA of VEA specifies that certain income support indexed amounts are increased in line with increases in MTAWE. The first MTAWE increase of $6.80 per fortnight in the single rate of service pension occurred on 26 March 1998.