Addressing the concerns regarding women’s retirement savings is strongly on the agenda for the government at the moment, with numerous industry groups, research houses and major financial firms submitting their recommendations for tackling the problem. These proposals are being made for the Federal Government’s Inquiry into Economic Security for Women in Retirement.
Amongst many other groups, the Financial Services Council (FSC) has had its say.
Why there is a super gap
In their submission, the FSC put forward two main factors which are affecting women’s economic security and hurting their retirement savings down the line:
- Workforce participation rates: Despite comprising 46 per cent of all employees in Australia, a significant proportion are working part time. This is largely due to the fact that women usually adopt the responsibility for the care of children or elderly family members
- Gender pay rate disparity: From graduation all the way to senior leadership positions, there is a consistent disparity in the pay rate between men and women. At graduate level, average starting salaries for women are 4 per cent less than for men. Full-time average weekly ordinary earnings for women are currently 17.9 per cent less than for men.
FSC 5 Policy Options
These are the policy options the FSC want the Federal Government to strongly consider when addressing the gender super gap.
Superannuation contributions on Commonwealth Paid Parental Leave
The Commonwealth Paid Parental Leave (PPL) scheme currently in action provides 18 weeks’ pay at minimum wage, but doesn’t provide for superannuation contributions. According to the Parliamentary Library, the current PPL scheme costs $1.6 billion per annum, meaning that introducing a superannuation guarantee (SG) component would cost an extra $150 million per year (at the SG rate of 9.5 percent).
The FSC recommends that the Government implement this component to provide all primary carers under the PPL scheme the SG contributions they would have received had they continued in paid employment.
“The significant impact of lower or nil SG contributions during a break to care for a child is a product of the compounding effect of a long term investment,” the FSC said.
“Maintenance of the full SG contribution an employee would have otherwise received would have a significant effect on reducing the long-term savings gap of Australians who take breaks to care for a child, predominately female employees.
“Under this proposal the Commonwealth PPL scheme would retain its existing eligibility criteria, reducing the cost to the Commonwealth and ensuring the scheme remains targeted to middle and lower income employees.
“This would also help ensure the scheme has the effect of reducing age pension reliance in the longer term.”
Increase the Superannuation Guarantee Contribution to 12 per cent
The FSC also called for the SG to be increased from 9.5 to 12 per cent, pointing out that 9.5 is insufficient for most Australians to achieve an adequate level of retirement savings.
“The recent pause in the SG at 9.5 per cent has resulted in a $136 billion blow out in the retirement savings gap, that is, the gap between the amount the working population will accumulate by retirement and the amount required for an adequate retirement for their life expectancy,” the FSC said.
“Rice Warner research shows an average Australian woman must contribute 18 per cent of her income to super from the time she enters the workforce to achieve an adequate, self-funded retirement without the support of the age pension.”
Removing barriers in the Sex Discrimination Act 1984
According to the FSC, the Sex Discrimination Act 1984 is preventing employers from addressing the issue of women earning less super than men. The FSC wants the Government to “permit lawful discrimination in circumstances where employers are making higher superannuation contributions to female staff to address any gender gap in retirement savings.”
The FSC raised the examples of Rice Warner Actuaries and ANZ Bank, who recently implemented policies such as:
- Higher superannuation guarantee contributions for female employees; Economic security for women in retirement Submission 57 Page 5 of 7
- Free financial advice for employees with low balances;
- Specialist financial planning services for female employees; and
- Payment of SG on unpaid parental leave and employer sponsored paid parental leave.
The FSC said the Sex Discrimination Act 1984 treats some of these policies as discriminatory, so they want such barriers to these ‘super gap reduction’ measures removed through an adjusted nationally consistent anti-discrimination legislation.
Low Income Superannuation Contribution
The Low Income Superannuation Contribution (LISC), set to be repealed by the Government in 2017, compensates the 15 per cent superannuation contributions tax for individuals earning taxable income of less than $37,000 a year. The LISC makes up for the flaw that low-income earners pay a higher rate of tax on their compulsory contributions than they would if the money was paid as income.
With women the largest recipients of the scheme, the FSC wants the government to continue the payment of the LISC.
“Due to the impact that the repeal of the LISC would have on workforce participation and the long term retirement savings of low-income earners, the FSC recommends that the Government not repeal the LISC,” the FSC said.
The FSC also called for the government to align the eligibility for the LISC and the PPL scheme at a lower threshold.
“The eligibility criteria for the LISC requires that at least 10 per cent of an individual’s income to be sourced from employment and/or the carrying on of a business,” the FSC said.
“This test is inconsistent with the eligibility test for the Commonwealth Paid Parental Leave Scheme (PPL), potentially resulting in some individuals not receiving the LISC as a result of being a low income individual who has also taken in that year.”
Lower the threshold for not paying superannuation contributions
The current threshold below which employers do not have to pay superannuation is $450 per month – around $112.50 per week. The FSC wants the government to lower this threshold.
“The contribution rate on an income below $112.50 is less than $11 per week, and therefore adds little to the cost of employment,” the FSC said.
“The long-term nature of superannuation and power of compound growth, however, ensures that even modest contributions such as $11 per week may have a significant impact on the quality of an individual’s retirement.
“A contribution of only $11 per week to an individual’s superannuation savings, based on annual investment growth of 7.5 per cent, results in a retirement balance of $140 000 after 40 years of retirement.”
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