11.1.2 Indexation of Pensions and Allowances

Last amended: 15 August 2013

CPI

What is the CPI?

The Consumer Price Index [glossary:(:]CPI[glossary:):] provides the official measure of inflation in Australia. The CPI is calculated by the Australian Bureau of Statistics. Movement in the CPI is measured quarterly for the three month period — s ending 31 March, 30 June, 30 September and 31 December each year. The CPI figures are normally published around four weeks after the end of the quarter. The CPI is not a percentage but an index number. Any two numbers from the index can be compared to c — a — lculate a percentage change.

CPI indexation factor

The CPI indexation factor is determined by comparing two quarters of CPI figures. The more recent of these quarters is known as the reference quarter and the older is known as the base quarter. The CPI number for the reference quarter is divided by the CPI number for the base quarter, rounding the answer to three decimal places.

Reference and base quarters for CPI

Legislation describes which CPI figures are used as the base and reference quarters. The reference and base quarters vary between different payments, allowances and limits. [See paragraph [glossary:11.1.3 Indexation timetable].

Effect of Negative CPI

Effect of negative CPI growth on pension

Indexation is only applied if the Consumer Price Index:MMRCA/PM/11.1.3] [glossary:(:]CPI[glossary:):] indexation factor is greater than one. This ensures that in periods of negative CPI growth, payments are not reduced through indexation. An indexation factor of less than one will result where the CPI number for the reference quarter is less than the CPI number for the base quarter.

Positive CPI 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.

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.

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.

How Certain Pensions and Allowances are Indexed

How permanent impairment payment is indexed

The rate of permanent impairment payment is indexed using CPI only, on 1 July each year.

How the Special Rate Disability Compensation Payment is indexed

The weekly Special Rate Disability Compensation Payment is not indexed but is set as equal to 50% of the fortnightly Special Rate (T&PI) of Disability Compensation Payment under the Veterans' Entitlements Act 1986.  The Special Rate (T&PI) is indexed each 20 March and 20 September.

How the Wholly Dependent Partner payment is indexed

The weekly Wholly Dependent Partner payment is not indexed but is set as equal to 50% of the fortnightly war widow(er) pension under the Veterans' Entitlements Act 1986. The war widow(er) pension is indexed each 20 March and 20 September.

How the maximum Attendant Allowance payment is indexed

The rate of permanent impairment payment is indexed using CPI only, on 1 July each year.

How the maximum Household Assistance payment is indexed

The rate of permanent impairment payment is indexed using CPI only, on 1 July each year.

How education allowance is indexed

Education allowances are indexed using CPI only on 1 January each year.

How the MRCA supplement is indexed

The MRCA supplement is not indexed but is set as equal to the veterans supplement under the Veterans' Entitlements Act 1986.

How Clean Energy Supplement is indexed

The rate of Clean Energy Supplement for permanent impairment payment is indexed each 1 July using CPI only. For wholly dependent partner payment and Special Rate Disability Compensation Payment, the weekly Clean Energy Supplement rate is set each 20 March and 20 September as equal to 50% of the fortnightly rate of the equivalent payment under the Veterans' Entitlements Act 1986.