The ‘super’ gender gap: a significant issue for equality in retirement

Paul Howes, Partner, Head of Wealth Management
Paul Howes, Partner, Head of Wealth Management

The proposed super changes in May were the most contentious part of the Federal Budget, and – depending on what newspaper you read – may have contributed to the Coalition’s majority being cut to wafer-thin levels after the election.

The furore continues, post-election, with exemptions to the proposed $500,000 lifetime cap on non-concessional contributions now the source of keen political debate.

Given all this, it is worth reflecting on why some of the Budget proposals were put forward. They were made for good reason – to address the fact that females (half of the population) have not enjoyed as much benefit from the super system as they should.

Women are still retiring with significantly less super than men, and without urgent action, this unacceptable state of affairs will go on for too long.

Just consider this. A recent bi-partisan Senate Committee found that the disparity between men’s and women’s superannuation balances on average over life is 45.7 percent or $37,749. At certain age points this rises to a staggering 70.1 percent.

This is not a legacy issue. The Committee found that the super gender gap is expected to change little over the next 40 years. There are several reasons.

  • Firstly, women have additional responsibilities which result in career and superannuation contribution breaks.
  • Secondly, women earn less, often for the same work.
  • Thirdly, women live longer in retirement.

Given these three factors, it is then not surprising that women have, on average, significantly smaller super balances to rely on in retirement. Two thirds of those with low income balances are women.

To combat the first issue, KPMG strongly supports the government’s Budget measures to allow those with broken work records – mostly women – to make top-up payments. Tax offsets associated with contributions to low income spouse accounts – most held by women – will be extended with eligible recipients’ income limits increased from $10,800 to $37,000. The retention of the Low Income Super Contribution for low earners and allowing tax deductions for all contributions into superannuation is also welcome.

We also support the changes which will allow those with superannuation balances of less than $500,000 to rollover their unused concessional cap amounts for a period of 5 years.

While the fine details can be debated, surely no-one can oppose the principle of introducing limited exemptions from concessional and non-concessional capping arrangements to allow women to boost their superannuation contributions to compensate for periods out of the workforce, changed family circumstances, including divorce, financial separation and reduced contributions generally.

There are slight quibbles – KPMG would like to see the Superannuation Guarantee being applied to income replacement payments such as paid parental leave and workers compensation payments. And the income threshold when superannuation is paid – currently $450 per month – could also be made more generous.

But overall, these are very fair and important moves which will go some way to ensuring more people have a decent retirement package.

On the second issue, the gender pay gap is stubbornly persistent in Australia.

Prior to the introduction of the superannuation guarantee in 1992, superannuation was the preserve of well-paid men. Some women will still recall when there was, in some industries, a prohibition on married women working. There was no chance that when they did work, they would receive the same wages as male ‘bread winners’. The latest figures and research Senate Committee report show that these bad old days are not such a distant memory.

In our submissions to Government regarding the objective of superannuation KPMG argued that retirement income parity for women with men can only be substantially addressed by addressing the wider socio-economic inequities that result in women earning less income than men. The Senate Committee report clearly shows that we have a long way to go.

Tax will play a major role in this. A vital source of productivity gain in the Australian economy and society is greater female participation in the workforce and the interaction of the tax and transfer systems is an integral part of increasing this benefit. KPMG has already argued that employer funded top-up child care costs should be treated as exempt benefits, and we should move away from a family or joint income test for childcare benefits. This leads to high marginal tax rates for primary carers seeking to enter the workforce. Assistance for childcare should be linked to the child, not partner income.

Trying to reduce gender inequality both in superannuation provision and in wider societal outcomes is going to take hard work and willingness to compromise.

Take for example the other contentious Budget super issue. We believe capping the balance in the retirement phase of the fund to $1.6 million, while allowing any excess to be retained in the accumulation fund, strikes the appropriate balance. Bringing down the 30 percent tax threshold from $300,000 to $250,000 again seems to reach a reasonable balance between equity and keeping incentives for people to fund their own retirement.

There are no easy answers. But if necessary changes to address blatant inequality in the super system have to be funded by paring back some current concessions, then as a society, we should accept it.

One thought on “The ‘super’ gender gap: a significant issue for equality in retirement

  1. Grant Wardell-Johnson

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    Paul,

    Thank you for an excellent article. The point that the super gender gap is expected to change little over the next 40 years is of great concern. It raises the question of whether our policy settings are right in other areas. For example, the interaction between the taxation and the transfer system on family and childcare benefits can produce very high effective marginal tax rates for some women moving from three days to four days work. This arises because of the structure and tapering of certain payments which are based on family or joint income. Looking at these broader policy settings could provide a significant productivity boost to the Australian economy as well as giving rise to a fairer society.

    Grant Wardell-Johnson

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