For pensioners aged 55 or older, indexation is based on the more favourable of positive movements in:

  (a)   the consumer price index (CPI); and

  (b)   the pensioner and beneficiary living cost index (LCI);

with an adjustment if needed to ensure that affected pensions are increased by at least the percentage required to maintain a hypothetical pension at 27.7% of male total average weekly earnings (MTAWE).

The hypothetical pension (called the indicative pension amount) is part of the method used to work out what the percentage increase should be (called the 55 - plus percentage). The hypothetical pension does not represent the amount of any actual pension, or the amount that any actual pension should be. It is just a device to work out the percentage by which actual pensions should be increased.

Each 1   January and 1   July, the amount of the hypothetical pension, as indexed by the higher of CPI and LCI, is compared with what the amount of the hypothetical pension should be if it is to continue to be at least 27.7% of MTAWE. If the CPI/LCI result is higher than the MTAWE result, the 55 - plus percentage is the higher of the percentage movements in CPI and LCI. If the MTAWE result is higher, the 55 - plus percentage is the percentage increase needed to maintain the hypothetical pension at 27.7% of MTAWE.

Once the 55 - plus percentage has been worked out, affected pensions are increased by that percentage.