Pensions will be indexed to CPI (prices) only instead of wages and prices from 1
July 2017. Payments affected include the Age Pension, Disability Support Pension,
Carer Payment and Veterans’ Affairs pensions.
Parenting Payment Single (for single parents with preschool age children) would
be indexed to prices only from 1 July 2014.
The income and assets tests for all income support payments, including for
pensions and many allowances, will be tightened.
The indexation of pensions to CPI would have a significant impact on pension
levels. While pensions would still increase as prices rise, they will increase more
slowly. After 10 years, ACOSS estimates that single pensioners will be $80 per
week worse off than they would be under current arrangements. Community
living standards improve with increases in wages, but the living standards of
those on pensions will fall behind.
The change affects all pensioners including those on the Age Pension, Disability
Support Pension, Carer Payment, Parenting Payment Single, and Veterans’ Affairs
pensions.
Tightening the income and assets tests for pension and allowances will mean less
people will be able to access the payments. The assets test for pensions is
currently overly-generous and should be tightened, however the income test is
reasonable and further tightening may deny pension payments to some people
already on low incomes.
Split Schedule 1.
Reject proposals to index pension payments to the CPI only, and to freeze
income test thresholds. Support proposal to freeze assets test thresholds.
Seek information on the impact of these measures on households on different
payments and different private income levels.
* Please turn to next page for more information
© Australian Council of Social Service | Locked Bag 4777 | Strawberry Hills | NSW 2012 | June 2014
Pension payments are effectively indexed to a percentage of Male Total
Average Weekly Earnings (MTAWE). The single rate of the pension is
effectively indexed to 28% of Male Total Average Weekly Earnings
(MTAWE), or by movements in the CPI or Pensioner and Beneficiary Living
Cost Index (PBLCI) whichever gives the highest result.
The Parenting Payment Single is set at the lower rate of 25% of MTAWE,
though the indexation arrangements are otherwise the same as for other
pensions.
In recent decades, wages have tended to increase at a faster rate than
prices1, meaning that the payment has increased by more than CPI. While
the CPI rose by 17% between 2005 and 2011, average wages rose by 23%.
The single rate of the age pension is currently $383.00 a week.
Income thresholds and limits are a way of targeting payments to those with
incomes and assets under a certain amount. Pension income and asset test
limits are indexed to CPI, so their real value stays the same. Pension income
and assets tests include2:
 Income ‘free areas’ – the amount of income a person can earn to
receive the full rate of a payment (after that the payment is reduced
as extra income is earned). For example, the income free area for
the single pension is currently $78 per week.
 Asset test free area – the maximum value of assets a person can
have to receive the full rate of a payment (after which the payment
is reduced as the value of assets increases). For example, the assets
a single person can have to receive the full pension is $197,000 (for
homeowners – the value of the family home is not included in this
amount).
 Income or asset limits – the maximum income or value of assets a
person can have before losing qualification for even a partpayment. For example, the asset limit to receive the part pension is
1
Klapdor, Michael (2014) Pension indexation: a brief history Flag Post: Information and Research from the
Parliamentary Library. Posted 16/04/2014. Accessed 24.6.14
http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2014
/April/Pension-indexation.
2
Amended from Parliamentary Library (2014) Changed indexation of pensions and tightened eligibility for all
benefits.
Page | 2
currently $1,126,500 for couple homeowners (the family home is
not included in this amount).
The income test for Allowances such as Newstart Allowance is much
stricter:
 The ‘free area’ is just $50 per week.
Deeming Rates
Deeming assumes that a certain income is earned from financial
investments (and as such data on the actual amount of income earned
does not need to be collected). This income is then counted in pension
income tests.
Current deeming rates are set at 2% up to a set threshold, and 3.5%
thereafter. The thresholds are:
 Single person: $46,600 in financial investments
 Couple: $77,400 in financial investments.
These thresholds are currently indexed to CPI each year.
This bill will change the indexation arrangements for the payment rate of
pensions so that from 1 July 2017 pensions (other than the Parenting
Payment single) will be indexed each year by CPI instead of both wages
and the CPI.
Indexation arrangements for the Parenting Payment Single will change
three years earlier than for other payments, from 1 July 2014.
The Bill will tighten the income and assets tests for pensions and all income
support payments. It will do this by: pausing indexation on income and
assets test ‘free areas’ for pensions, allowances and student payments (such
as Youth Allowance and ABSTUDY) for three years; by pausing indexation
on deeming thresholds for all income support payments for three years;
and by lowering the income test deeming thresholds for entitlements.
The following timetable will apply:
 Indexation will be paused from 1 July 2017 for pensions and
deeming thresholds, and from 1 July 2015 for Parenting Payment
Single, Newstart Allowance and student payments.
 Deeming thresholds will be lowered to $30,000 for singles and
$50,000 for couples from 20 September 2017.
Page | 3
Indexing pension payments to CPI will achieve $315 million in budget
savings over the forward estimates.
Pausing indexation on income and assets tests will achieve $192 million in
budget savings over the forward estimates.
Pension Indexation:
The indexation of pensions to CPI has a significant impact on pension
incomes. While pensions would still increase as prices rise, they will
increase more slowly. ACOSS estimates that 10 years after this change is
implemented, pensioners would be $80 per week worse off than they
would be under current arrangements. The Government estimates that
3,800,000 people would be affected. Community living standards improve
with increases in wages, and as such the living standards of those on
pension would fall relative to the rest of the community.
Pensions are a vital shield against poverty for older people and many
people of working age, and are frugal by international standards. If the
pension payment does not keep pace with incomes, then more people on
pensions, including older people on the age pension will fall into poverty.
In 2008 27% of older people were living in poverty. This fell to 12% in
2009/10 after the pension was increased in 2009, showing the impact that
payment rates can have on reducing poverty. In 2012 42% of people living
on the disability support pension were living in poverty, while 45% of those
on the Parenting Payment were living in poverty.
Income and Asset Tests:
While the pension income test is quite reasonable, the asset test for
pensions was eased in 2006 to the extent that that couples with over a
million dollars in assets besides the family home can now access the part
pension.
Freezing indexation of the assets test will mean some people with
substantial assets besides the family home will not be able to access
pension payments. This is supported. The family home would still be
excluded from the assets test as it is now. However freezing indexation of
income tests means some people already on low payments will not be able
to access payments and others will receive lower payments. The income
test for Allowance payments is already very stringent.
The government should identify and separately consider the impacts of
these changes on different groups of people.
Page | 4