Earlier this year in April, the Federal government released the provocatively titled report ‘A Husband is not a Retirement Plan – Achieving Economic Security for Women in Retirement’.
More recently, the annual Federal government Workplace Gender Equality Agency (WGEA) Equal Pay Day report, which lists the inequalities between the salaries of women and men in Australia, was released on 8 September.
Both make for challenging reading for women when it comes to thinking about how to control their financial future, including how to best prepare, invest and save for retirement.
Using Average Weekly Earnings data from the Australian Bureau of Statistics, the WGEA calculated that the current national gender pay gap stands at 16.2 per cent for full-time employees, a difference of $261.10 per week.
To put it another way, that 16.2 per cent difference means women working full-time need to work more than 14 months on average to earn the same as men earn in a year.
This inequity in pay affects almost all women, irrespective of whether they are working in less-skilled roles or in white-collar professional areas. For example, the gender pay gap in ASX 200 organisations is 28.7 per cent.
Inequity in superannuation for women
Unsurprisingly, the inequities in superannuation feature strongly in both the ‘A Husband is not a Retirement Plan’ report and the annual WGEA findings.
According to WGEA director Libby Lyons: “Over a lifetime, compounded by time out of the workforce due to caring responsibilities, the gender pay gap contributes to greatly reduced lifetime earnings and retirement savings. On average, women retire with just half the superannuation savings of men.”
To be specific, the WGEA found that the average superannuation balance for women at retirement is 52.8 per cent less than for men.
The ‘A Husband is not a Retirement Plan’ report states that “the problem of economic insecurity for women in retirement is starkly illustrated by the gender gap in superannuation savings . . . which currently stands at 46.6 per cent at the point of retirement.”
Irrespective of whether the gap is 52.8 per cent or 46.6 per cent, the gap is too great when it comes to women being able to control their financial and personal destiny during their work-life and into retirement.
Changes in the super landscape for women
The Federal government announced a raft of changes to superannuation in its 3 May budget, including measures aimed at helping women (and others with low super balances) improve their super in the lead-up to retirement.
Chief among the changes is the introduction of catch-up concessional super contributions. From 1 July 2019/20, people with super account balances of $500,000 or less will be allowed to carry forward unused concessional contribution caps on a rolling basis for up to five years.
As the Federal government said at the time: “Women often experience breaks in work, or work part-time, which contributes to lower, on average, superannuation account balances than men . . . This [change] will allow those with lower contributions, interrupted work patterns or irregular capacity to make contributions to make ‘catch-up’ payments to boost their superannuation savings.”
Another measure announced in the Federal budget to assist women and others with low superannuation balances was the introduction of the Low Income Superannuation Tax Offset, which will replace the Low Income Superannuation Contribution when it expires on 30 June 2017.
This change will continue to support the accumulation of superannuation for low income earners by allowing people with an adjusted taxable income of $37,000 or less to receive an effective refund of the tax paid on their concessional contributions, up to a cap of $500.
It is never too late to start boosting your super
While the Federal government changes will go some way to helping women (and others) address inequities in their super balances, these changes alone are not the complete answer.
One of the first things I encourage people to do when considering their super is to avoid falling into the mindset that it is too late to do anything about it.
Even the smallest amounts added to your superannuation account will compound over time and can make a sizeable difference to your super balance as you close in on retirement.
With this in mind, one of the first things you can do is to consider salary-sacrificing into super up to your concessional caps limit.
Depending on your financial circumstances it is also worth considering making one-off non-concessional (after tax) contributions to superannuation. Whilst you will have paid income tax on these contributions on the ‘way in’, under current legislation you will not pay tax on the interest they earn in your super account and nor will you pay tax when you finally begin to access your super.
How long is it since you met with your financial adviser to review your super investment risk profile? The higher the risk category, the higher the potential reward. Usually, people prefer a higher risk profile early in their career and change to a more conservative approach as they close in on retirement.
It is also well worthwhile exploring the ways your spouse can make contributions to your super fund. For example, depending on what you earn, your spouse may be able to claim an 18 per cent tax offset on super contributions of up to $3,000 they make to your super. There are also potential tax advantages to be gained from what is called ‘contribution splitting’, where your spouse contributes a portion of their employer super contributions to your super account.
To find out more about how to maximise your super – whether you are at the start or end of your career – and to ensure that your super plans align with your overall planning for wealth creation and retirement, please call me on 03 6234 2233 or email me on Kristian@falconeradvisers.com.au.