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How Certain Pensions and Allowances are Indexed

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Last amended: 15 August 2013

How the service pension MBR is indexed

The partnered maximum basic rate (MBR) is indexed each 20 March and 20 September by the greater of CPI and PBLCI, then further increased if necessary so that it equals 50% of the MTAWE benchmark. The MTAWE benchmark is 41.76% of MTAWE. The combined partnered MBR is set at double the partnered MBR and the 'not a member of a couple' MBR is then set at 66.33% of the combined partnered MBR. Different rules apply for the transitional rate of service pension.

How the pension supplement is indexed

The combined partnered rate of pension supplement is indexed each 20 March and 20 September with CPI only. The 'not a member of a couple' rate of service pension is set to be 66.33% of the combined partnered rate while the partnered rate is set at 50% of the combined partnered rate.

Calculating the maximum rate of service pension

The maximum rate of service pension is equal to the sum of the MBR and the pension supplement.  Rent assistance, clean energy supplement and remote area allowance may also be added to the maximum rate payable.

Pension MBR factor

    

The pension MBR factor is the new 'not a member of a couple' MBR divided by the old 'not a member of a couple' MBR, rounded to three decimal places. Special rules applied in calculating the factor on 20 September 2009. The factor is calculated at the same time that service pension rates are indexed. The factor is used to index certain amounts, instead of directly indexing them using CPI or other increases:

How ceiling rate income support supplement and service pension are indexed

The ceiling rate for ISS and for war widow(er) pensioners entitled to service pension is indexed each 20 March and 20 September using the pension MBR factor. This also applies to the ceiling rate of service pension paid to war widow/widower veterans with qualifying service.

How the maximum transitional pension and income support supplement are indexed

The maximum transitional pension rate is indexed using CPI only, on 20 March and 20 September each year.

How seniors supplement is indexed

    

Seniors supplement is not indexed but is set as equal to the minimum pension supplement amount, which is indexed each 20 March and 20 September using CPI only.

How war widow's/widower's pension is indexed

    

VEA →

Section 30 VEA – Rates at which pensions are payable to dependants

VEA → (go back)

War widow's/widower's pension is made up of three parts - the 30(1)(a) component, the 30(1)(b) component and the 30(1)(c) component. Each component is individually indexed each 20 March and 20 September. The three components are added together to make up the pension payable. The following table explains how the three components are indexed:

Component

Indexation

Paragraph 30(1) (a) VEA component

Not indexed but set as equal to the new 'not a member of a couple' MBR

Paragraph 30(1) (b) VEA component

Pension MBR factor

Paragraph 30(1) (c) VEA component

CPI only

How disability pension is indexed

    

Disability pension is indexed using the pension MBR factor. For above general rate pensions, the above general rate component and the general rate component are indexed separately, both using the pension MBR factor.

How education allowance is indexed

Education allowances are indexed each 1 January against CPI only.

How the veterans' supplement is indexed

    

VEA →

Section 198F VEA - Indexation of veterans supplement

VEA → (go back)

The veterans supplement is indexed against CPI only on 1 January each year, commencing 1 January 2010.

How clean energy supplement is indexed

Clean energy supplement is indexed using CPI only. Indexation occurs at the same time as the clean energy underlying payment is indexed.

How the Prisoner of War Recognition Supplement is indexed

    

VEA →

Section 115P VEA - Rate of prisoner of war recognition supplement

Section 198D VEA - Variation of rates of certain allowances etc.

VEA → (go back)

The Prisoner of War Recognition Supplement is indexed using CPI only on 20 September each year, commencing 20 September 2012.


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).

 

 

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).

 

 

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.

 

 

The pension supplement is added to a person's maximum basic rate. The pension supplement is calculated as a 'combined couple' rate. The 'not a member of a couple' rate is 66.33% of the 'combined couple' rate. The member of a couple rate is 50% of the combined couple rate. From 1 July 2010, the minimum pension supplement amount will be able to be claimed on a quarterly basis rather than on a fortnightly basis.

 

 

Rent Assistance is an allowance, which may be paid to a service pensioner or income support supplement (ISS) recipient to assist in meeting the cost of rental accommodation.

To receive rent assistance, a pensioner must be paying rent (other than Government rent) for accommodation in Australia, and the amount paid must exceed a certain threshold.

The energy supplement is an ongoing, regular payment designed to help recipients meet the cost of living impact of the carbon price.

 

 

Remote area allowance is a supplementary payment added to the rate of income support pension where the pensioner's usual place of residence is situated in a remote area, and where the pensioner is physically present in the remote area.

The pension MBR factor is the percentage increase in the 'not a member of a couple' service pension maximum basic rate. It is used for the indexation of some payments, limits and thresholds. The factor is calculated each time the rate of service pension is indexed and is equal to the new 'not a member of a couple' MBR divided by the previous 'not a member of a couple' MBR.

 

 

ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.

 

 

The ceiling rate of service pension and income support supplement (ISS) is applied to all war widows/widowers when assessing the rate of pension. This amount was previously frozen at $124.90 per fortnight, however, since legislation was introduced in September 2002, is now indexed twice yearly in line with percentage increases in the maximum rate service pension. A higher ceiling rate can apply, however, in the following cases:

If a person:

  • became a war widow/widower-pensioner before 1 November 1986,

  • has continually received service pension, social security pension or ISS since that date, and

  • the rate of pension immediately before that date was more than $120.10

in such a case the ceiling rate is equal to the pre-November 1986 rate plus 4%.

If a person:

  • is a person to whom ISS is payable,

  • is not permanently blind, and

  • whose Part II or IV pension is [glossary:compensation reduced:DEF/Compensation reduced pension],

the ceiling rate is the sum of the ceiling rate as calculated above and the amount of the reduction in the Part II or Part IV pension. The maximum ceiling rate cannot exceed the maximum rate of single service pension. For ceiling rates refer to SCH6-A4 to A9 of VEA. The amount of increase to the ceiling rate pension under Part II or Part IV is worked out by using the formula in SCH6-A9 of the VEA.

 

 

A war widow/widower is generally a person who immediately before their partners death, was the partner of, or was legally married to:

Refer to 5E(1) of the VEA for the full definition.

 

 

A form of pension that is paid to the partner of a veteran where the veteran has died as a result of war service or eligible Defence ServiceWar widow's/widower's pension is also paid to the partner of a veteran whose death was not war caused if the veteran was a ex-prisoner of war or if the veteran was receiving Extreme Disablement Adjustment Rate, Special Rate (T&PI) or a rate increased in respect of certain war-caused injury or disease.

 

Disability pension, for the purposes of service pension and income support supplement, means:

  • a pension paid for incapacity from war caused conditions, or peacetime, peacekeeping or hazardous service caused conditions (other than a war widow's or orphan's pension); or
  • temporary incapacity allowance; or
  • any other payment in respect of incapacity or death resulting from war or war-like operations in which the Crown has been engaged [usually paid by another Commonwealth country].

Above general rate disability pensions, which include T&PI, TTI, Intermediate Rate or EDA .

 

 

The ceiling rate of service pension and income support supplement (ISS) is applied to all war widows/widowers when assessing the rate of pension. This amount was previously frozen at $124.90 per fortnight, however, since legislation was introduced in September 2002, is now indexed twice yearly in line with percentage increases in the maximum rate service pension. A higher ceiling rate can apply, however, in the following cases:

If a person:

  • became a war widow/widower-pensioner before 1 November 1986,

  • has continually received service pension, social security pension or ISS since that date, and

  • the rate of pension immediately before that date was more than $120.10

in such a case the ceiling rate is equal to the pre-November 1986 rate plus 4%.

If a person:

  • is a person to whom ISS is payable,

  • is not permanently blind, and

  • whose Part II or IV pension is [glossary:compensation reduced:DEF/Compensation reduced pension],

the ceiling rate is the sum of the ceiling rate as calculated above and the amount of the reduction in the Part II or Part IV pension. The maximum ceiling rate cannot exceed the maximum rate of single service pension. For ceiling rates refer to SCH6-A4 to A9 of VEA. The amount of increase to the ceiling rate pension under Part II or Part IV is worked out by using the formula in SCH6-A9 of the VEA.

 

 

The veterans supplement was introduced on 20 September 2009 as part of the Government's Secure and Sustainable Pension Reform package. It is a fortnightly payment that replaces pharmaceutical allowance and/or telephone allowance for compensation recipients who are not in receipt of an income support supplement. There are two rates, the veterans supplement low rate and the veterans supplement high rate. The low rate replaces one of the allowances and the high rate replaces both. The low rate is indexed every January to the Consumer Price Index (CPI). The high rate is always twice the amount of the low rate.

 

 

A clean energy underlying payment means any pension, payment, supplement or allowance under the VEA or MRCA that attracts a clean energy advance and energy supplement .