Pension boost: big gains not enough to cover cost-of-living rise

The pension increase coming on September 20 is the largest in 12 years but will still see seniors falling behind financially.

The federal government’s age pension increase later this month of $38.90 a fortnight for singles and $58.80 for couples is a welcome income boost, but seniors are still slipping behind soaring living costs.

September’s rise, when combined with the previous half-yearly increase in March, means pensions will climb a total of 6.1 per cent in 2022.

However, inflation has been forecast by the Reserve Bank of Australia to rise 7.75 per cent over 2022, a fair chunk more than the pension increases.

Of course, the Reserve Bank doesn’t have great form with predictions lately. Nobody can forget it’s “interest rates shouldn’t rise until 2024” doozy last year.

But if anything, the RBA’s 7.75 per cent inflation forecast could be too low, considering it’s already higher in many other countries. Inflation in the US and Britain is at 8.3 and 8.7 per cent respectively, while several European nations are between 9 and 16 per cent.

Not only is inflation rising faster than the age pension, the bills that older Australians spend the most money on are rising faster than inflation. Think groceries, utilities and petrol – which will have another 22c-a-litre spike later in September when the government’s cost-of-living relief ends.

Pension rises will always happen more slowly than consumer price rises because pension movements are indexed to CPI data and other price and earnings measures taken earlier.

Extra cash is coming to pensioners’ households from September 20

Given costs are still climbing quickly, the next pension indexation rise – in March 2023 – could be even larger than this month’s 3.9 per cent increase.

But right now, retirement costs are rising faster than seniors’ income, meaning that older Australians will have to do more with less.

There’s a chance they may get some extra assistance in the October federal budget, although Treasurer Jim Chalmers has pledged to avoid pumping extra cash and stimulus into a hot economy.

Retirees are generally insulated from Australia’s current burst of rapid-fire interest rate rises because most have paid off their mortgages, and some seniors may choose to top up their income by working part-time. New rules mean they will temporarily be able to earn $11,800 this financial year – up from the usual $7800 – before the Centrelink income test kicks in and they start losing age pension payments at a rate of 50c per dollar of wages collected.

Many other older Australians are unable to work, so their household bills will climb faster than their pension.

Some pensioners can take comfort from the fact that their 6.1 per cent pay rise in 2022 is probably greater than most employees will receive.

While both retirees and workers’ real incomes – measured after inflation – are going backwards, it is a bitter financial pill that Australians everywhere are being forced to swallow.

We all have to take a hit for Team Australia, because if we demand even greater wage rises and social security payments right now we will probably push inflation higher still. That will mean rising unemployment and more pain for homeowners already struggling as the RBA uses interest rate rises to hammer down inflation.

The September 20 pension rise won’t be enough to beat the cost-of-living crunch, but it’s probably the best seniors can expert. After all, it will be the largest pension indexation increase in 12 years – at least until another big jump comes in six months’ time.