Age pension benefits from higher of two inflation measures

The age pension is subject to a complicated indexation process which is intended to keep the age pension in line with the cost of goods and services. So, the pension indexation is highest following periods of high inflation, and lower as inflation declines. Though this doesn’t mean that prices are coming down, just that they are increasing at a slower rate.

The age pension indexation isn’t just based on the widely known Consumer Price Index (CPI). Instead, it takes the higher of CPI and the Pensioner and Beneficiary Living Cost Index (PBLCI), which is meant to account for the different spending patterns of people receiving the age pension.

The age pension indexation is based on the previous six months of inflation. So, for September, it is based on the inflation from January to June.

For the latest ABS data, we estimate that the upcoming age pension indexation will use the PBLCI figure. On a six-month basis CPI has been steady at around 2%, while PBLCI has been increasing and reached 3.2% in the six months to June 2026.

It is not the raw percentage changes that determine the increase, rather separate categories of spending, such as ‘food and non-alcoholic beverages’ or ‘transport’, are weighted based on the approximate proportion of typical spending.

Since the PBLCI is higher, the largest changes in prices for the six months up to June 2026 using that index were in health (7.08%), housing (5.86%), then insurance and financial services (5.57%). But once the weightings are applied, housing was the largest contributor to the increase, followed by health.

If the indexation was based only on CPI rather that the higher of that or PBLCI, instead of a maximum increase of $55.60 for couples and $36.80 for singles, we estimate it would be $35.80 and $23.70. Just this indexation method for the age pension could mean $520 extra in age pension for a couple over a year.

But this higher indexation doesn’t apply to the whole pension. The age pension is made up of three payments:

Basic Rate
Pension Supplement
Energy Supplement

The higher of CPI or PBLCI indexation only applies to the pension ‘basic rate’. The pension supplement is only indexed to CPI. The energy supplement is not indexed and instead fixed at $10.60 for each member of a couple and $14.10 for singles.

The higher indexation level is then checked against a measure of wages and increased if it falls below a particular level.