The gender pay gap can cost women $79,164 at retirement

New data shows men out-earn women across every generation. Canstar looks at what this means for women’s super and provides tips to help women power up their savings.

When women hit their peak parenting years – juggling everything from domestic duties to learner-driver logbooks – the gender wage gap balloons.

New data from the Workplace Gender Equality Agency (WGEA) shows the gap between men’s and women’s salaries begins widening from the age of 35.

By the time they hit the 45 to 54 age bracket, there’s a difference of 30.2% or $41,520 per year. The gap peaks at age 55 to 64 when men earn 31.9% or $40,987 per year more than women. “Even women who have reached senior executive and CEO roles at age 55 and over still face a large earnings gap, taking home about $93,000 per year less on average than their male senior executive and CEO counterparts,” explained WGEA.

The fact that many women are predominantly working part-time or casually contributes to the gap. According to WGEA, at no age were more than 50% of women working full-time yet higher-paid management opportunities were almost exclusively (90%) for full-time workers. As a result, women are missing out on management roles which further accentuates the gender pay gap for women, said WGEA.

Canstar’s editor-at-large Effie Zahos said it’s not just women’s earnings that fall behind when they’re working part-time and not taking on management roles. “There’s a big knock-on effect for women’s retirement savings,” she said.

Canstar crunched the numbers based on WGEA’s findings and discovered that the wage gap can lead to a yawning difference of $79,164 in men’s and women’s super balances at retirement age (see table).

Impact of gender pay gap on superannuation

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Source: www.canstar.com.au. Prepared on 24/06/2022. Scenario begins at the start of the 2022-23 financial year and is based on an 18-year-old with a starting balance of $0, gross annual income that increases according to age as stated (per average remuneration from Workplace Gender Equality Agency Data 2021), and retiring at age 67. SG Contribution amounts per Government announced rates and are assumed to be paid into superannuation fund quarterly. Employer contributions are assumed to be taxed at 15%. Net investment returns assumed to be 6.47% p.a. based on the average annual 5-year return of balanced investment options available for an 18-year-old on Canstar’s database (with returns effective to 30 Apr 2022). Average life and TPD insurance premium of $197.83, is assumed charged at the end of each year based on products available for a 25-year-old on Canstar’s database. Insurance premiums are assumed to increase with inflation each year. Inflation is assumed to be 2.5%p.a. due to the rising cost of living (CPI Inflation) plus a further 1.5%p.a. due to the rising community living standards. End balances at retirement are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income and superannuation performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

There are things you can do that may help close the gap. “But by following a few simple strategies women can turn their financial futures around and reach retirement age with healthier super balances,” said Ms Zahos.

10 ways to power up your super savings

1. Tackle the earnings gap

After the age of 35 women are twice as likely as men to be working part-time and 90% of managerial roles are full-time, according to WGEA. When looking for a job, consider targeting companies that promote women into part-time managerial roles or allow managers to job share.

Ask for pay rises and keep asking. WGEA data shows women are asking for pay increases but they don’t get them as frequently as men.

2. Check parental leave policies

“If you’re planning to start a family, check your employer’s policy on paying super while on parental leave,” suggested Ms Zahos.

WGEA data shows three in five employers now offer paid parental leave. Of those employers 81% pay super for parents on paid leave; 74% pay super during the employer-funded parental leave and 7% on both employer-funded and government-funded parental leave.

“You can use WGEA’s interactive data explorer to search a company’s gender equality data,” said Ms Zahos.

3. Let dollars flow into your fund

The great news with this tip is that technically you don’t have to do anything. The super guarantee (SG) contributions will rise from 10% to 10.5% of your base wage or salary on 1 July.

For a woman on the average female weekly wage of $1591.20 that means almost $8 extra going into her super each week. “It may not sound like much, but it could potentially add thousands to her super by retirement age,” said Ms Zahos.

There’s also reason to celebrate if you’ve been earning small sums from multiple employers. From 1 July the $450 monthly income threshold for receiving SG payments will be removed. Canstar’s calculations show that shift could mean a 30-year-old part-time employee earning $400 a month is $57,385 better off at retirement.

4. Get the government to contribute

For women on low- to middle- incomes the government could add some firepower to your super. If you make a personal (after-tax) contribution to your super fund, the government may make a co-contribution up to a maximum of $500.

To get the maximum co-contribution you need to make a $1,000 non-concessional super contribution.

For the 2022-2023 year, the maximum co-contribution will be payable if your income is less than $42,016 and it reduces gradually until it cuts out at $57,016.

“To give yourself the best possible chance of receiving the government’s co-contribution, start putting $20 from your weekly pay into super at the start of the financial year,” said Ms Zahos.

5. Run a health check

Make time to review your super fund. How is it performing and how do its fees compare to others in the market? Fees can make a big difference to your super balance. Let’s say a 25-year-old has an average initial income of $77,948 and there’s annual inflation of 2.5% on average and average investment returns of 6.85% a year. Canstar calculations show someone paying fees that are 0.75% of their super balance can end up with $165,423 more at retirement than someone paying 1.5%.

6. Ask your spouse to contribute

For women who take a few years out of the workforce or drop to a lower income, there are still opportunities to top up their super. During those years you could ask your spouse or de facto to contribute to your super fund.

“The spouse contribution can help you boost your wealth and they get a tax perk too,” said Ms Zahos.

For your spouse to be eligible for the full tax offset of $540 your income needs to be $37,000 or less and they can contribute up to $3,000 into your fund. The tax offset amount reduces when your income is greater than $37,000 and cuts out entirely when your income reaches $40,000.

7. Contribute when you can

Good earning years are the time to accelerate your super savings. That’s when the bring-forward and carry-forward rules are your friends.

“The bring-forward rule allows you to make up to three years’ worth of non-concessional (after-tax) contributions to your super in a single income year,” explained Ms Zahos. That means you can contribute up to $330,000, depending on your age and your total super balance on 30 June of the previous financial year.

“The carry-forward rule lets you access unused concessional cap amounts from previous years. To use your unused cap amounts your total super balance at the end of 30 June of the previous financial year has to be less than $500,000,” said Ms Zahos.

“You must have also made concessional contributions in the financial year that exceeded your general concessional contributions cap.”

8. Go shopping

Spending to save might sound counterintuitive but not if you use sites such as Super Rewards and Boost Your Super. By linking your super fund to these cashback sites you can be building super while you shop.

“Every time you shop through the site – whether you’re getting the groceries or buying shoes – you will get cash rewards paid into your super account,” said Ms Zahos. The cashback rewards are usually about 2% to 3% but can sometimes be as high as 10%.

9. Hunt for lost super

There was almost $14 billion in lost and unclaimed super as at 30 June 2020, according to the Australian Taxation Office. It is quite easy to find out if some of that lost super belongs to you and reclaim it.

10. Take advantage of parental leave perks

What does your fund offer members when they are on parental leave? Some will waive insurance or administration fees or refund member fees, for example. “Check to see how your super fund will support you through those years when you are starting a family,” suggested Ms Zahos.

Cover image source: Dmitry Demidovich/Shutterstock.com