Q: The problems around superannuation for women, namely low balances as a result of interrupted work patterns and lower pay, have existed for so long. Why do you think we are still talking about this issue in 2018?
A: It’s a good question and the answer is not a straightforward one.
As the Senate Economics References Committee stated in its April 2016 Report on Achieving economic security for women in retirement, the causes of gender inequality in retirement are complex, and a solution is correspondingly complex.
The Committee observed that the phenomenon of women’s superannuation balances at retirement being, on average, half the size of men’s is a problem born of many interrelated factors and that, at its heart, is the fact that women and men experience work very differently. The report concluded that government, business, and individuals all have a role to play in achieving women’s full participation in our workplaces.
Two of the main issues that adversely affect women’s superannuation account balances are that women are more likely to:
- experience broken work patterns
- receive lower pay than men over their lifetimes.
Many people have periods out of paid employment, or work part-time/casually, for a variety of reasons, including due to illness or injury; to study; because of redundancy or an inability to find suitable employment; or to have a career break. The reality remains, however, that the major reason for taking significant time out of the workforce, or for working part time/casually, is to care for children, parents or other family members. As long as this responsibility is performed primarily by women, they will earn less and have less superannuation on retirement.
The gender pay gap exacerbates the issues caused by women’s experience of broken working patterns. According to the Australian Bureau of Statistics, in 2016, the average female wage was 89 per cent of the average male wage (non-managerial adult hourly ordinary time cash earnings), while the median female wage was 92 per cent of the median male wage. This gap has remained relatively steady over the past decade.
Q: Should employers be able to contribute more for women without being considered to have breached anti-discrimination legislation?
A: Even if a woman has not experienced a substantive break in paid employment, and has managed to accrue the same amount of superannuation as a man of the same age, she will have less economic security in retirement relative to the man.
Given she can be expected to live up to three years longer this means that the woman will receive a lower income throughout her retirement, or will run out of her superannuation with a longer period left to rely solely on the age pension, when compared with the man. Accordingly, to attain equivalent economic security in retirement, a woman entering retirement needs to have a higher superannuation balance than a man retiring at the same age.
Rice Warner, as part of a wide-ranging package of measures approved by the Australian Human Rights Commission, contribute an extra 2 per cent of salary in superannuation contributions for their female employees over and above what they contribute for their male employees. Similarly, the ANZ Bank announced it will pay $500 more in superannuation contributions per annum with respect to its female employees.
As contributing more for women is considered a breach of anti-discrimination legislation, employers have to approach the Human Rights Commissioner for approval. Amending the legislation would enable employers to make higher levels of contributions for their female employees, thereby boosting their superannuation, without having to apply to the Human Rights Commissioner for approval.
Q: How can we help address the issue of small superannuation balances through some form of ‘top up’ payment to low income individuals with small account balances?
A: The single most effective, equitable and targeted measure to address the issue of people with low incomes is the low income superannuation tax offset (LISTO).
The LISTO applies to taxpayers with an adjusted taxable income up to $37,000 (beginning of the third income tax bracket) to refund an amount equivalent to the contributions tax paid on contributions, up to an annual maximum of $500.
As the LISTO is paid directly by the ATO into the superannuation accounts of those people who have low incomes, the LISTO is an especially well targeted and efficient measure. The ATO determines the amount, if any, to which an individual is eligible and remits it directly to the individual’s fund to be allocated to the member’s account.
Given this, the LISTO is an ideal mechanism which could be extended to help address the issue of small balances through the provision of some form of ‘top up’ payment to low income individuals with small account balances, as this would assist small accounts to achieve ‘critical mass’ faster – especially if individuals are not in the position to make additional contributions themselves. ASFA will be undertaking some work on the merits and implications of an additional ‘top-up’ for low income earners with small account balances to determine the feasibility and efficacy of introducing such an extension to the scheme.
Q: How will removing the $450-a-month threshold for superannuation guarantee boost retirement savings for many women?
A: In the Superannuation Guarantee (SG) regime there is an earnings threshold of $450-a-month before SG contributions become payable. This has the effect of penalising low-income earners and has a particular effect on those workers who work part time or combine a number of part-time jobs. While this is not unique to women it does have a tendency to affect roles predominately performed by women, such as the caring professions, retail, cleaning and hospitality. Often this affects women who desire to work part time due to child raising, or who are forced to do so through a lack of adequate or affordable childcare.
Accordingly, ASFA recommends removing the $450-a-month threshold for superannuation guarantee. We estimate that around 365,000 individuals (220,000 women and 145,000 men) would benefit from the removal of the threshold through higher retirement savings.
Q: As women are most likely to experience broken working patterns, what can be done to help catch-up lost superannuation?
A: The best way to catch up lost superannuation is for women to try to make additional contributions whenever they are in a financial position to be able to do so.
With the regulatory changes in 2007, the abolition of Reasonable Benefits Limits saw the introduction of annual caps on contributions, currently $25,000. The annual concessional contribution cap can be overly restrictive for members who are attempting to ‘catch-up’ by making additional superannuation contributions when their circumstances permit.
ASFA welcomes the introduction of the unused concessional cap carry forward measure, which comes into effect from 1 July 2018. Under this measure members will be able to ‘carry-forward’ any unused amount of their concessional contributions cap and will be able to make concessional contributions up to this cap on a rolling basis for five years, provided their total superannuation balance at the end of the previous financial year is less than $500,000.