Lifting women’s superannuation is not the answer

KPMG has proposed a gimmicky reform aimed at boosting women’s superannuation contributions in order to bridge the gap in retirement savings between women and men:

The latest report, The Gender Superannuation Gap: Addressing the Options, suggests that the primary carer (usually a woman) should receive a rebate on the 15 per cent Superannuation Contributions Tax paid on contributions made for up to five years following the period out of the workforce.

That basically means that the primary carer would be compensated for superannuation lost while at home caring for children.

Under the KPMG proposal, which is yet to be costed, the primary carer would be able to catch up to 50 per cent of the mandatory concessional contributions that might reasonably have been made, had she (or he) not taken time out of the workforce.

The individual would claim the rebate through their personal income tax return. The total $500,000 fund balance limit to be eligible for “catch up” concessional contributions would also apply.

These reforms 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:

Superannuation concessions

Superannuation concessions are unfair.

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.

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).

Taxpayer support for super

Superannuation concessions skewed to the rich.

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 around $40 billion per year – far more than it saves in Aged Pension costs. Thus, increasing government contributions to 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 greatly if Australia’s superannuation concessions were abolished altogether and the budgetary savings were instead directed into boosting and broadening the Aged Pension. Although because the superannuation system is entrenched, we would never see such a reform.

The growing outrage over the disparity between male/female superannuation and earnings is also 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.

Even when couples divorce, financial resources are split-up and distributed among the spouses, including superannuation savings. So what’s the big issue? Those women that do not partner up and have children have the same superannuation earnings capacity as men anyway.

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 and improving access to the Aged Pension.

Unconventional Economist

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