Is pension indexation based on wages still alive?

Article published 24 November 2021

Is pension indexation based on wages still alive?

AT the next indexation of the pension in March 2022, it will be exactly thirteen years ago since the average weekly wage was used as the basis for calculating the indexation amount.

The average weekly wage was called by its acronym, MTAWE.

MTAWE was a byword for pension indexation. It ensured that the pension kept up with wages when wages were growing strongly.

People who went on the Age Pension in 2009 are now in their 77th or 78th year and may never have heard of MTAWE.

It was introduced in March 1998. It was used in more than half the indexations for the next eleven years, falling into a coma after March 2009. Never used since.

Pension indexation uses inflation (the Consumer Price Index) as the first indexation mechanism. This is then compared with a second measure of inflation, the Pensioner and Beneficiary Cost of Living Index. The higher of the two wins. The new pension amount that rolls out of that is then compared with MTAWE. If MTAWE is higher, then MTAWE wins.

If MTAWE had been the only pension indexation mechanism, the basic pension (without supplements) would now be $1,298.98 for couples instead of $1,330. The single pension would be $861.61 instead of $882.20.

This means MTAWE has some catching up to do before it gets a chance to be used in pension indexation again.

The signs are that it isn’t.

Figures from the Australian Bureau of Statistics just out show that wage increases have gone back to pre-pandemic levels. That is, wages had not been keeping up with inflation before COVID, and there is no indication that they will anytime soon.

It means your pension won’t be indexed using MTAWE anytime soon.

But your pension will be indexed in line with inflation, and that’s something wage-earners can only dream of at the moment.

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