Retiree Welfare and the 2009 Pension Increase: Impacts from an Australian Experiment SERENA YU School of Economics, University of Sydney, Sydney, NSW, Australia The welfare effects from the 2009 increase in the age pension are evaluated using a quasi-experimental, difference-in-difference regression framework. Using microdata to exploit the exogenous and large increase in the single-person pension rate, the research finds significant improvements in the material welfare of single age pensioners. In particular, non-housing and total consumption rose by 7 per cent and 4 per cent, respectively. The effects were amplified among the poorest retirees. The study extends the literature on the welfare benefits of pension programs, and provides evidence that the policy changes were highly effective in lifting the material welfare of the targeted beneficiaries. I Introduction Reforms to Australia’s retirement income sys- tem have been at the forefront of policy discourse in recent years, and the motivation for this paper is to measure the welfare effects, if any, which arose from a recent change in the public Age Pension. Such an exercise is important given the current policy environment, in which recent proposals have focused on improvements in fiscal sustainability and savings (e.g. changes to index- ing arrangements, and tightening of the means test), without commensurate evaluation of poten- tially offsetting welfare effects. The focus of this paper is changes made to the Age Pension in 2009, which followed the 2008 Harmer review of the pension system. The Harmer review of measures of financial security for Australia’s seniors, carers and those with disabilities found that the ‘relativity of the rate of pension for single people living by themselves to that of couples is too low’ (Harmer, 2009, p. xii). In response to the review, in 2009 the Rudd Labor government announced significant changes to the public pension program. Foremost among these was a significant $30 weekly increase to the base single-person pension rate and a $2.49 increase in supplemental single-person pension payments. 1 These reforms resulted in a historically unprece- dented, one-off 19.5 per cent increase in single- person annual pension income, compared to 7.9 per cent received by couples at the same time (Commonwealth Government of Australia, 2014). There is a broad literature on the incentive effects of public pension programs on the savings and labour supply decisions of older individuals, with far more limited studies into the welfare effects of these and other government transfer programs. The research presented in this paper contributes to this literature in three main ways. First, by using a quasi-experimental approach exploiting the exogenous variation in the policy settings, a robust evaluation of the reform’s effects on retiree welfare is presented. Second, by using rich data on individual incomes and expenditures, broader dimensions of welfare are examined, including consumption and depriva- tion. Third, the research draws attention to the JEL classifications: I3, I38, D12 Correspondence: Serena Yu, School of Economics, University of Sydney, Sydney, NSW 2006, Australia. Email: serena.yu@sydney.edu.au 1 Other reforms included an increase in the Age Pension eligibility age from 65 to 67 years, a tightening in the income means test, and an increase in the annual indexation arrangements from 25 per cent to 27.7 per cent of male total average weekly earnings. 1 © 2015 Economic Society of Australia doi: 10.1111/1475-4932.12237 ECONOMIC RECORD, 2015