Each year in October the amount of your pension is adjusted by reference to the percentage change in CPI from one June quarter to the next June quarter. This adjustment most often results in an increase in your State Super pension, but your pension can be reduced if the percentage change in the CPI is a negative amount.
Annual adjustments to State Super pensions were introduced in 1974. Under the scheme legislation, where the change in CPI for a year is negative, but less than -1.0%, no adjustment to pensions is made in that year. If the negative change in CPI is -1.0% or greater (e.g. -1.5%), then pensions are reduced in that year by the amount of the change.
In July 2020, the ABS announced that the change in the CPI - All Groups Sydney from the June quarter 2019 to June quarter 2020 was -1.0%. This would have resulted in a reduction to your pension, however, the scheme legislation has recently been amended to increase the threshold to -1.1%, ensuring that State Super pensions will not be reduced by the negative CPI rate for this year, but will be offset the change in CPI in 2021 when any adjustment to pensions is calculated.
This is the first time that the change in CPI for Sydney has been negative since adjustments to State Super pensions commenced in 1974. The negative CPI rate for 2020 can be attributed to the economic consequences of the global COVID-19 pandemic, with the fall in the June quarter of 2020 the largest fall in the 72-year history of the CPI.
What is the CPI?
Simply defined, the Consumer Price Index (CPI) measures the change in the price of a fixed basket of goods and services acquired by household consumers from one period to another.
The Australian Bureau of Statistics (ABS) regularly measures the cost of a set list of items in order to calculate a CPI for each of the eight State and Territory Capital Cities. They also calculate a combined weighted average of the eight capital cities, which is generally the CPI that we hear about in the media.
The CPI that is used to adjust your State Super pension each year is the All Groups Sydney Index, which is an index based on Sydney prices and includes all the categories in the standard basket.
What’s in a CPI basket?
The 11 categories included in each of the 9 All Groups Indexes are:
- Food and non-alcoholic beverages
- Alcohol and tobacco
- Clothing and footwear
- Housing
- Furnishings, household equipment and services
- Health
- Transport
- Communication
- Recreation and culture
- Education