CPI and the pension indexation issue
(Note: Our archived previous website dealt extensively with the indexation issue and is worth keeping for historical purposes. See it here.)
Commonwealth superannuation pensions have been indexed by the Consumer Price Indexation (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%
20190321-Indexation-graph-to-end-December-2018-1
(Note: Previous indexation graphs can be found at the end of this page)
- At 30 June 2017 Commonwealth superannuation pensions (CSS) 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.
- As at 30 June 2020 the average pension for the major civilian schemes (CSS and PSS) and MSBS people was $38,075 (this does not include DFRB or DFRDB numbers or the two very small civilian schemes (the PNG scheme and the 1922 Act scheme).
July 2021 Media Article – What is CPI and what does it measure ?
So you don’t believe the official inflation figures. Why would you?
They show prices climbing at an annual rate of 1.1% ! Ridiculous isnt it !
Read more on this here… a useful article that covers a lot of the technical stuff about CPI. It is welcome to see that it mentions the adjustments that are made to actual prices because of a change in quality of an item. But it needs to be borne in mind that most changes in quality are improvements and that therefore the majority of the adjustments to actual prices are downwards… in other words, the CPI figure is less than the actual prices consumers are faced with. The reality is that in the real world consumers will only have the improved model available (and consumers have no choice and must buy the improved model). It is for this reason that CPI does NOT track the prices real world shoppers actually pay.
February 2021 Discussion Paper
A short, updated discussion paper makes informative reading .. read it here
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. That breach occurred because the CPI was considered a reliable cost of living measure when chosen in the late 1990’s as the indexation tool for Commonwealth superannuation pensions. However it has progressively been shown to not measure real shop prices due to significant downwards adjustments to reflect quality change in the CPI basket of goods and services.”
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 as were 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?
CPI and Wages.
The link between wages and CPI is discussed in the ACPSRO media release of 28 March 2018.
Indexation graphs
SCOA updated the indexation information at the end of each quarter. Past indexation graphs can be viewed or downloaded in the table below.
| Date (Quarter) | View/Download graph here |
| June quarter 2018 | Indexation graph to end June 2018 |
| March quarter 2018 | Indexation graph to end March 2018 |
| December quarter 2017 | Indexation graph to end December 2017 |
| September quarter 2017 | Indexation graph to end September 2017 |
| June quarter 2017 | Indexation graph to end June 2017 |
| March quarter 2017 | Indexation graph to end March 2017 |
| December quarter 2016 | Indexation graph to end December 2016 |
| September quarter 2016 | Indexation Graph to end September 2016 |
| June quarter 2016 | Indexation graph to end June 2016 |
| March quarter 2016 | Indexation Graph to end March 2016 |
| December quarter 2015 | Indexation Graph to end December 2015 |
| September quarter 2015 | Indexation graph to end September 2015 |
Indexation campaign downloads you might find useful
We invite you to join with us to continue our pursuit for a fair pension indexation and have suggested some actions you might take in the documents below. Many of the documents – eg the Campaign Letters – are obviously out of date, but nevertheless outline the issues involved.
| Click on the links to download the documents you want to use | |
|---|---|
| 2018 Campaign Letter | Campaign Letter |
| Pension indexation Fact Sheet (December 2017) | Pension Indexation Fact Sheet 2017 |
| Get involved in the Fair Pension Indexation Campaign | Get involved in the Fair Pension Indexation Campaign |
| Write a letter to the Prime Minister | Letter to the Prime Minister January 2015 |
| Write a letter to the Leader of the Opposition | 2014 Campaign letter to Leader of the Opposition |
| Write a letter to your local MP or Senator |
2014 Campaign letter to local MP Letter to your local Senator January 2015 |
| Write to your local MP about indexation | Write to your local MP about indexation |
| The problems with the 2008 Matthews Inquiry, by Dr Annette Barbetti | The problem with the Matthews Inquiry and Report |
| Adjustments to prices for technological improvements and quality changes in price indices, by Dr Annette Barbetti | CPI Paper |
| Can you trust the CPI ? | Can you trust the CPI Rev 4 Oct 20 ? |
If you require further information about these issues you are welcome to contact us.