Sent:	Wednesday, 31 January 2001 5:33 PM
To:	super.sen@aph.gov.au
Subject:	Superannuation and the CPI

(02) 6286 2227                                    37 Parkhill Street
                                                          Pearce ACT 2607
 
                                                          31 January 2001
 
The Secretary
Senate Select Committee on
Superannuation and Financial Services
The Senate
Parliament House
Canberra ACT
 
Re: The impact of the CPI on Commonwealth Pensions
 
I would much appreciate your examination of issues related to the CPI's impact on Commonwealth pensions, as illustrated in the remarks below.
 
My retirement from the Commonwealth Service took place shortly after the introduction of the present PSS scheme. I had the opportunity to move to the PSS before retirement; the Government presented seminars on the two schemes (the CSS and the PSS), and provided funds for advice from a financial adviser, who assured me that nothing could beat an indexed pension. With hindsight, I might well have done better to take the considerable lump sum to which the PSS would have entitled me, and invest it wisely. It is now clear that the CPI is responsible for a continual eroding of my pension in relation to its present day monetary value.
 
Here are figures for my actual pension payments over the last five financial years. (I regret that these are the only years for which I still have accurate figures):-
 
Financial Year                    Amount            % Increase
 
1995/96                              $27,406                n/a
1996/97                              $28,420                3.7
1997/98                              $28,790                1.3               
1998/99                              $28,789                nil
1999/00                              $30,226                5.0
 
The average annual increase was a little over 2.0%, and the actual increase over a four year period was 10.3%.
 
In contrast, my wife's pension with the Universities scheme (SSAU) was subject to a 6.1% increase from 1 January
 2001.
 
Also in contrast, may I quote from the "Age Pension News", page 4, March/April 2000 edition, published on behalf of Centrelink:
 
Reader: "As the government is paying the March 2001 Consumer Price Index increase (CPI) in July 2000, what will happen to the September 2000 CPI increase? Will this also be swallowed up in the July 2000 increase? By the way, thank you for a very informative and eminently readable magazine"
 
Editor: "The 20 March 2000 and 20 September 2000 indexation of Age Pension will be unchanged and will occur as normal. The four per cent increase in pension rates applicable from 1 July 2000 involves a two per cent advance on the 20 March 2001 indexation (the forecast impact of the Goods and Services Tax on the CPI) and a two per cent real increase above what would normally be paid. It is possible that there will also be a further increase in rates on 20 March 2001. Any changes in the CPI beyond the projected two per cent advance will be paid at that time."
 
Two indexations a year? Advances of indexation? Real increases above the normal? Possible further increases? Heavens above, give me an Age pension any day!
 
Bear in mind, please, that every Australian, whether they have worked all their lives or no, is entitled to an Age pension. The Commonwealth superannuant, under the means test, has to forego all or at least part of the same pension.
 
What is the difficulty with the CPI? Simply, I believe, that it is heavily weighted downwards by the cost of things such as new cars, personal computers, white goods, and others which cope very well with inflationary pressures. Such items are seen as luxuries by low income earners who have problems in coping with the much more dramatic increases in the cost of essential items such as housing costs, government charges, food, clothing, and heating.
 
Perhaps it is time for the ABS to consider splitting its present CPI collection into two; a collection similar to the present CPI, which we might call the "API", or "All Prices Index"; and a subset of the API, for true cost of living indicators, which we could call the "CPI". That way, perhaps legislation changes might be unnecessary.
 
I would be grateful for your consideration of the issues which I have raised.
 
 (David Banks)