In their submission, Mercer recommended a range of measures for the Government to take with regards to the wide gap in superannuation balances between men and women.
Superannuation Pay Gap Will Always Remain
While Mercer said their proposals will go a long way towards evening the playing field and reducing Australia’s retirement income gap, they admitted that some level of this gap will always remain. Mercer cited three main reasons for this:
- Women are more likely than men to voluntarily take considerable time out of the workforce to undertake caring duties
- Women, on returning to work after a considerable period of caring, will have been leapfrogged in the promotional race by those (both male and female) who remained in the workforce
- Women (particularly the spouses of high income males) are more likely to make lifestyle choices of not working (or working minimal hours) than men
Mercer’s Proposed Superannuation Adjustments
Here are the adjustments that Mercer proposed:
Reinstate and improve the Low Income Superannuation Contribution (LISC)
The Government’s LISC, which applies to those earning less than $37,000 a year and compensates them for the 15% tax on concessional contributions, is legislated to be removed in 2017.
Mercer said this removal should not take place, believing the LISC to be “an important equity measure in the superannuation tax system, both from a tax equity and a gender equity viewpoint.”
“This removal could be considered as indirect discrimination against women as we expect a significant proportion of low income earners are women,” Mercer said.
“We have noted recent claims the removal will impact a total of 3.6 million low income earners of whom 2.2 million are women.”
Along with their calls for the LISC’s continuation, Mercer also recommended these improvements to it:
- Ensure the cut-out income threshold is maintained at the top of the 19% income tax scale
- Increase the maximum Government contribution so that it fully offsets contribution tax on employer contributions at the then current superannuation guarantee (SG) rate on the threshold income level
Update mandatory Superannuation Guarantee (SG) contribution requirements
While they did not agree with calls for a higher SG rate for women (believing it would further increase the difficulties of females getting employment), Mercer proposed these other changes to the SG system to reduce the gender gap:
- Require SG contributions to be made for those on carers and parental leave
- Require SG contributions by the self-employed
- Remove the $450 a month threshold for SG contributions
- Remove the exemption from SG for those under 18 who are working less than 30 hours a week
Greater flexibility with contributions
Mercer suggested the contributions system be less restrictive in a number of ways:
- Lifetime contributions cap: Introduce a lifetime contribution cap. “This would provide females, in particular, greater opportunity to catch up on contributions which were not paid during their caring years, and hence reduce the gender gap,” Mercer said.
- Amend anti-discrimination law: Mercer said the Government could assist and encourage additional contributions to females by “ensuring anti-discrimination requirements are modified to enable such voluntary contributions without the need to seek and justify approval from relevant State and/or Federal agencies”.
- Provide tax incentives to employers: Mercer also suggested the government consider “providing tax incentives for employers who do provide higher contributions for females”. As an example, they said “a double tax deduction could be provided for the differential in contributions”.
Remove requirements for default insurance (under age 25)
By default, insurance cover is provided on all superannuation funds on an ‘opt-out’ basis for members. Mercer said that this insurance is not required for a significant proportion of younger members, so they suggested the Government consider removing these default requirements for members under 25.
Mercer said removing these requirements (for members under 25) could result in an additional $1,000 of retirement savings over 10 years which could accumulate to over $ 4,000 in today’s terms by age 67.
“This will be relatively more significant for females than males as retirement savings during the period after age 25 are likely to be lower for females than males (due to caring responsibilities),” Mercer said.
“Any additional amounts saved before age 25 are therefore likely to represent a higher proportion of the ultimate benefit for females compared to their male counterparts.”