Raising women’s superannuation is not the answer

This week, there have been multiple calls for the government policy to boost women’s superannuation contributions in order to bridge the gap in retirement savings between women and men.

It began when the Australian Council of Trade Unions (ACTU) demanded that the superannuation guarantee be lifted to 15% for women.

This was followed by KPMG which called for the federal government to make direct contributions into women’s superannuation accounts:

Women are the victims of these disparities in ways so egregious that KPMG observed “Australia discriminates against the majority of its population – women”…

“We say the government should provide super contributions for people on paid parental leave and provide top-up super for primary carers without demanding co-contributions,” Mr Wardell-Johnson said.

In another unexpected recommendation, KPMG called for the government to make super contributions for “those 50 to 59 receiving Commonwealth Rent Assistance”.

The Victorian Government also yesterday demanded direct government contributions to women’s superannuation accounts:

The Andrews Labor Government’s submission to the Commonwealth’s Review of the Retirement Income System makes a number of recommendations aimed at making sure women enjoy the same financial security in retirement as men – and aren’t penalised for taking time out of the workforce to have children.

Currently, women do not earn super on the Commonwealth’s Paid Parental Leave scheme. This means their superannuation balance takes an immediate hit, while they also forego compound interest for the rest of their working lives.

It’s unfair and it fails to recognise the professional hurdles they face when raising children.

The case for action is clear: The average woman’s superannuation balance at time of retirement in 2015/16 was $157,050, compared with $270,710 for men. That’s a 42 per cent superannuation gap.

That’s why the Labor Government’s submission makes a number of recommendations, including:

  • Making superannuation payable as part of the Commonwealth’s Paid Parental Leave scheme
  • Mandating superannuation funds to introduce a fee-free period of up to 12 months for parents on parental leave
  • Allow joint superannuation accounts for couples, including same-sex couples
  • Amend the sex discrimination act to allow employers to offer higher superannuation payments for female employees without requiring them to seek exemptions

As part of its recommendation, the Labor Government wants the Commonwealth Government to deliver on its commitment to increase the Super Guarantee rate to 12 per cent – and provide a pathway for it to be lifted to 15 per cent.

All of these demands miss the main reason why superannuation is skewed so heavily against women: because of the inequitable way that concessions are distributed, which disadvantages low paid workers irrespective of gender.

Under current arrangements, most superannuation contributions/earnings are taxed at a flat rate of 15%. Accordingly, those on low incomes receive minimal concessions, whereas those on higher incomes receive the biggest tax concessions:

Since women generally earn less than men over their working lives – because they tend to work in lower paid professions (e.g. nursing and teaching), work part-time, or take time off from working to raise children – they obviously accumulate much lower superannuation balances.

Therefore, the first best solution for those worried about superannuation inequity is to reform the system to make concessions equitable by targeting concessions at those who need it most – i.e. lower and middle income earners.

That is, the system should be made progressive so that lower income earners – be they male or female – get a better deal.

The federal budget would also benefit from superannuation concessions going where they are needed most, given superannuation is currently being used as a tax avoidance scheme by the wealthy (mostly men) who would never have taken the Aged Pension anyway (as illustrated clearly in the next chart).

As shown above, the top 1% of income earners will receive more than $700,000 in taxpayer contributions to their personal superannuation accounts over their working lives, dwarfing the $50,000 received by the bottom 10% of income earners, according to the Australian Treasury.

Let’s also not forget that Australia’s compulsory superannuation system already costs the federal budget $38 billion per year – far more than it saves in Aged Pension costs. Thus, increasing government contributions to women’s superannuation accounts would increase this budgetary cost, leaving less funds to raise the Aged Pension or housing rent assistance.

Indeed, the welfare of women (and lower income earners generally) would be improved if Australia’s superannuation concessions were abolished altogether and the budgetary savings were instead directed into boosting and broadening the Aged Pension. Although I’ll admit this is a ‘bridge too far’ politically.

More broadly, the growing outrage over the disparity between male/female superannuation and earnings is largely a fake issue. Most of us belong to family units whereby husbands/wives pool their financial resources – both incomes and savings – and share workloads, be it paid or domestic.

Moreover, when couples divorce, financial resources are split-up and distributed among the spouses, including superannuation savings.

So, instead of fighting manufactured gender wars and playing identity politics, policy makers should instead focus on eliminating poverty, irrespective of gender.

Making the retirement system equitable is a good start, beginning with overhauling the superannuation concession system.

Leith van Onselen
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  1. Why does this place continue to paste the “Current arrangements” table which contains blatantly inaccurate information which inaccurately overstates that lower income earners get a raw deal?

    Those earning under $37K benefit from the superannuation low income tax offset, which in effect reimburses their 15% tax, resulting in no tax on their concessional contributions. So the right column numbers for the first two tax brackets should be 0% and 19%.

    This kind of error makes the rest of the article hard to take seriously, which is a pity because it has some valid points.

  2. Strange EconomicsMEMBER

    Then there is 2% more for salary sacrifice,
    only useful for higher income earners who may have some cash flow –
    Add 2% to the deductions , as the Medicare levy is excluded..

  3. Just more fake policy to address a manufactured problem. Addressing the root cause is far too hard and politically demanding, so instead of renovating the house, you just break a few windows with your collection of virtue pebbles, use tax payer funds to install rose coloured ones and boom, you’re a progressive winner.

    The fact that large consultancies and organisations with actuaries and analysts on staff continue to peddle this crap is borderline infuriating.

  4. Also, those “gaps” are based on current super balances, they are measuring the accumulated super balances across decades for a completely different generation, whom operated in an economy with a completely different structures.

    The average 25 year old female will NOT retire with the same “gap” as the average 60 year old women currently has. But hey, never mind basic statistics, we have a narrative to push people.

  5. “Currently, women do not earn super on the Commonwealth’s Paid Parental Leave scheme.”

    With the exception of Mary, most every women having a child will have a man in the picture. The biggest reform therefore in this area is allowing joint accounts (man / woman; man / man; woman / woman) for married folks. Eliminates fees and simplifies the system.

    The financial impact of a decision to have a child should be taken by a couple – they determine whether the trade off (in aggregate) is worth it. This is just a call for more middle class welfare. And single parenting is a particularly bad financial outcome no matter which way you cut it, so that is always going to be something that folks should seek to avoid. And if they don’t there is the pension.

    • ” Eliminates fees”
      This is one of the biggest lies the super industry loves to push. The vast majority of fees are percentage of funds in account. Consolidating accounts, splitting accounts, manipulating it in any way has no effect on fees paid yet they continue to push the consolidate your accounts to save on fees BS

  6. What if they don’t end up having kids?

    Labor are a divisive disgrace.

    If this legislation occurs it’ll destroy the women’s movement. Jumped the shark. Men will not put up with it.

  7. Jumping jack flash

    More proof that super is completely inadequate as a mechanism for saving for retirement.
    Of course, it depends on what the aim of super is. If super is to just alleviate a fraction of the total amount of money governments must spend on retirees, then yes, it succeeds.
    If super is to provide a comparable standard of living for retirees for their 20 years of retirement without requiring additional savings and investments then it fails spectacularly.

    The Age of Debt and the New Economy exacerbate the inability of super to be able to provide for retirees. Should it be scrapped? I think it needs to be redirected. If housing is the new sacred cash cow of the 21st century, and the “new gold” in so far as a store of wealth, then super should be used to purchase the required amounts of debt for purchasing houses which will never be allowed to fall in value.

    The result of this would protect against debt depression for possibly 5 years. Can’t be any worse than QE.