New Inflation Index: Pensioner & Beneficiary Living Cost Index

One of the May 2009 Budget initiatives was a proposal to develop an inflation index which was designed to measure price changes of the disposable incomes of pensioners.

The Australian Bureau of Statistics has developed the Pensioner and Beneficiary Living Cost Index ( “the PBLCI”).  This CPI for Pensioners will be used to index social security pensions when the PBLCI is greater than the CPI.

Consequently, social security pensions will be indexed by whichever is the greater: the increase in the CPI or the increase in the PBLCI.

While this is good news for pensioners, the bad news for taxpayers is that social security liabilities will be increasing at a faster rate than the CPI.

Additionally, now that there is a price index for pensioners (which will usually increase at a greater rate than the CPI) there will be strong pressure to index other pensions to the higher of the CPI or PBLCI.

Unfortunately, as pensions from SMSFs are mostly not open-ended liabilities but fixed-dollar liabilities which are fully paid by the SMSF pensioner member, indexation will not be relevant.