Financial Gender Gap A Worry for Retirees

The superannuation guarantee (SG) has been in existence for more than two decades now, which means that those who are currently heading towards retirement have had the benefit of compulsory retirement saving for at least half of their working lives

And according to the Association of Superannuation Funds of Australia (ASFA) the good news is that those workers are currently retiring with an average balance of $197,000.

If they’re male.

The bad news is that if those pre-retirees are female, the average superannuation balance is just $105,000 – significantly lower. It’s a dollar amount that will only increase over time; perhaps even more soberingly, ASFA report that the gender gap is just as pronounced for younger workers still in the accumulation phase.

Gender gap is understandable: women tend to start work later, are more likely to take extended leave due to family commitments, finish work earlier due to family commitments and earn less along the way. In fact CANSTAR has calculated that just five years out of the workforce can potentially cause a $156,000 hit to women’s retirement nest egg.

Whilst there are many lifestyle choices that both men and women make, all of which cost money in some form or other, the superannuation issue tends to impact women far more so than men. So – what to do about it?

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As part of a recent White Paper, ASFA has made three suggestions which, if implemented, would help to at least narrow the $92,000 gender gap. They are;

  • Remove the $450 per month threshold for the SG. Currently the superannuation guarantee (the 9.5% of ordinary time earnings that employers are required to pay workers in the form of superannuation contributions) only applies for workers who earn more than $450 per month. There is estimated to be approximately 250,000 Australians who miss out on around $75 million worth of superannuation due to this threshold. It particularly impacts those who work part time, casually, or for more than one employer.
  • Apply the SG to all substantive income replacement payments. While the SG is paid on ordinary time earnings, ASFA suggest that it should be extended to payments such as parental leave. According to ASFA, even just six months of SG applied to the paid parental leave of a 35-year-old woman earning $50,000 could add an extra $10,000 to her final super balance.
  • Allow employers to contribute more to the superannuation accounts of women. Currently, employers cannot discriminate by paying their female staff a greater rate of SG payments than the rate they pay their male staff. ASFA believe that the Anti-Discrimination Act should be amended to ensure employers can pay their female employees more superannuation, without being in breach of the Act.

Certainly there needs to be some thoughtful policy decisions in this area, with a number of Australian studies, including this one, finding that women face a far higher risk of poverty in retirement than men. “Many women face challenges when it comes to accumulating adequate retirement savings,” notes ASFA CEO Ms Pauline Vamos. “Policymakers need to urgently address the issues women have when it comes to their super, otherwise, we will have a growing number of women living in poverty when they retire.”

New circuit breaker suggestion

A new report from Deloitte has suggested that the government reverse the way that tax incentives are calculated on superannuation contributions so that everyone – high and low income-earners alike – receive the same level of taxation benefit. The current situation, to quote the report, is as follows;

“Whereas our super system is largely a flat tax, our personal income tax system is a progressive one, and that mix means some unusual incentives. Low income earners actually pay more tax when a dollar of their earnings shows up in superannuation rather than wages, whereas middle and high income earners get big marginal benefits.” Read more about the new Deloitte suggestion into tax reform.

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