When we first launched SuperGuide nine years ago, I wrote an article explaining why tax-free super in retirement was a non-issue for most women. The reason for making this statement, and which unfortunately remains valid nine years later, was that many women, on average, have such low super account balances that the prospect of paying tax in retirement was unlikely to ever be an issue anyway. I will explain how this plays out in practical terms later in the article.
I also wrote that many of the superannuation policies in place ignored the unique life circumstances faced by half of the country’s population, thanks largely to a parliament run by male politicians who were remote from the day-to-day demands of a typical family, and due to a superannuation industry and trustee boards of superannuation funds dominated by older male leaders (and in some cases, female leaders) who may have successfully fought the early super battles but are not generationally equipped to tackle the next fundamental change necessary to the super rules. Of course, the superannuation dilemma for women has been compounded by endless government tinkering and political expediency on both sides of politics, which cut back existing policies, or dismissed as ‘too hard’, possible female-friendly super policies.
I continue to hold these views and I am now becoming increasingly alarmed by the predominantly male politicians, predominantly male policy makers in Treasury, and predominantly male think tanks obsessing about the tax treatment of the comparatively wealthier older male retirees, while largely ignoring the vast majority of underfunded retirees and future retirees who are predominantly women. For an example of this recent obsession by one well-known think tank, see SuperGuide article, Why a $11,000 contributions cap is a silly idea, and for a snapshot of the male-dominated super trustee boards, see SuperGuide article Gender gap on super boards: Large funds slow to change .
Super policy can’t be based on a ‘perfect’ world
For many years I have held the view that notwithstanding the positive aspects of superannuation, ironically, the major flaw with Australia’s super system is linked to the key limb of work-related compulsory super. For our current superannuation system to have the best chance of working properly you need to possess ALL of the following characteristics:
- You’re male.
- Your work continuously for 35 years.
- You never change jobs.
- You make voluntary super contributions regularly throughout your working life, rather than playing catch-up after you’ve educated your kids and nearly paid off your mortgage.
- You know a lot about super, tax management and investing.
- You pay more than 15 cents in the dollar tax on your personal income.
- You haven’t divorced.
- You haven’t suffered illness.
- You haven’t relied on a financial adviser who receives (or received) commissions, or is underqualified or doesn’t place your best interests as a client first
- You believe the super rules aren’t going to change too much in the future, and they in fact don’t change too much.
Sadly, I believe the bullet list above still summarises how the political parties are handling superannuation policy: for a world that clearly doesn’t exist for many Australians, especially for women.
If the bullet list above doesn’t reflect your circumstances, or your beliefs, then the superannuation system is unlikely to meet your needs, unless you take a very strong, and a very active interest in your retirement savings. Taking such an active approach requires more effort but I do believe creating a financially secure retirement is still achievable, notwithstanding the obstacles.
And for the reasons above, the main beneficiaries of the super system are older males, but that is not because older, wealthier, males are rorting the system. Changing the super tax system as the think tank Grattan Institute suggests, will not stop older, wealthier, males obtaining the most advantage from the super system, even though the Grattan Institute naively believes it will. (Superannuation is a concessionally taxed investment vehicle, and older, wealthier males earn more, so pay more tax and receive more tax benefit from the super system.)
The real issue is why older males are earning more than older women, and why policies have not been developed to cater for this glaring difference in income levels between genders. Any Australian whose circumstances don’t reflect the bullet list above will still have to overcome structural and social obstacles to save for retirement.
So, how then should the superannuation decision-makers frame retirement policy, if they are relying on a world view that reflects a working life that exists for a shrinking number of Australians, and for very few women? The answer to this question is easy – accept that men and women have different working lives, on average, and adapt superannuation policies accordingly. How hard can this be?
Wouldn’t it be great if the major political parties considered a bipartisan solution to the structural flaws of the superannuation system, or perhaps the solution should not be left to the politicians, or the think tanks, but rather the women who have recently entered retirement and can share with us, what needs to change to make the future retirement of women a more comfortable experience.
Women earn less and live longer
In 2010, I wrote a Top 10 super wishlist for Australians, which included creating ‘a better super system for women’. At that time, I wrote that I’m a fan of Australia’s superannuation system (and still I am a fan) because I believe that most of the time the super system helps a lot of people save for a decent retirement, unless you’re a woman with children who spends an extended period out of the workforce, or you’re an older woman who reared children, and then divorced. Quoting from this 2010 article:
Although we may all like to think women and men are the same, in terms of money and finance, women generally have different life experiences to men such as:
- earning less (on average)
- living longer than men (on average); which generally means women need to save more in retirement than men, or live a more modest life
- taking time out of the workforce to bring up children
- if divorce occurs, a woman is usually the main carer of children from a marriage or other type of previous relationship
- raising children while also caring for elderly parents
- in the case of women in their fifties or older, most women were not given the option of having a super account until much later in life, if at all.
This huge gap in our super system that continues to ignore the work and life patterns of most women is a result of slack social and economic policy from successive governments on both sides of the political arena.
Note: The reasons underlying the low super payouts for women can be traced back to discriminatory work and superannuation policies over the past 50 years or so. The workplace was unkind to women in the fabulous fifties and the swinging sixties. Only employees in full-time work, and invariably male employees, were offered entry to company super funds. Women in the workforce were mainly single or divorced women, and women were paid half the money that men were paid for the same job until the laws were changed in 1975. Even now, according to countless studies, women are paid less than men in similar roles, although the gap is closing.
Today, family responsibilities, including rearing children and caring for elderly parents, still predominantly fall on women’s shoulders. Women, if working, are more likely to have part-time work rather than full-time work, although female participation in the workforce is increasing.
Superannuation policies reflected, and still reflect to a great extent, the culture of the times. The biggest superannuation issue for women continues to be time out of the workforce because virtually all superannuation policies are linked to work.
True, mainly men are benefiting from the policies, but this is not a tax issue as nearly every business group and think tank seems to think. The fact that mainly men benefit from the retirement income policy, is a structural, social and economic issue. Rather than dealing with these fundamental issues, it appears the government and many of these think tanks and business groups are pushing a political agenda, at the expense of women’s retirement needs.
Using the language of women
In late 2011, I published a book specifically for women on superannuation, Super Freedom: Create a Worry-Free Financial Future in 6 Steps (Wrightbooks) using practical case studies rather than quoting lots of super rules. I emphasised the fact that retirement is not an all or nothing proposition – a little bit of super, or private savings, in combination with the Age Pension can make a huge difference to your lifestyle in retirement. You can choose to do nothing, a little, a lot, or a lot more.
I believe this stepped approach (do a little, a lot, or a lot more) is how we can tackle the different working lives of men and women. The reality is that women earn less and live longer which means that the economic cost of women in retirement will be huge, assuming the government and think tanks continue to obsess about the male half of the population that has more super and gets more tax concessions from having super benefits.
Within the book, Super Freedom, I included a chapter explaining what I described as the 14 monkeys that stop women taking control of their super savings, which for me, highlights that the obstacles facing women saving for retirement are mainly personal circumstances, but also cultural, including a superannuation industry that talks the language of men, rather than women. You can check out the 14 monkeys, and links to other SuperGuide articles to help you overcome those monkeys, in the SuperGuide article, Super for beginners: 14 monkeys stop women creating a dream retirement.
What super policies recognise that many women work differently?
Superannuation Guarantee not universal: So, what has the federal government done for women who are seeking to have a better life in retirement? Not much. For example, Superannuation Guarantee contributions still only apply to workers earning more than $450 a month, and women on paid maternity leave are still not entitled to SG. Even so, compulsory super is going into member accounts just for turning up and doing your job every day, and that is a good start (for more information on SG, see SuperGuide article Superannuation and employees: 10 facts about your super entitlements).
Co-contribution was reasonably female-friendly for a little while: One of the more innovative superannuation policies, the co-contribution scheme, was promoted as a female-friendly policy because it applies to low-income earners and middle-income earners. Unfortunately, the policy excludes many women, because it is only available to working Australians: the self-employed (since July 2007) and employees. The co-contribution scheme should be widened to include stay-at-home mums (and dads) and full-time carers. Further the co-contribution scheme originally involved the government paying a tax-free super contribution of up to $1,000 each year, if an individual made a $1,000 after-tax contribution each year to a super fund. The co-contribution was then increased to $1,500. Since 1 July 2012, the maximum co-contribution was halved to $500, and the income test for the co-contributions has been savaged, which means many middle-income earners are no longer eligible. For those who are eligible, I believe the co-contribution scheme remains worthwhile: see SuperGuide article Cashing in on the co-contribution rules (2017/2018 year).
Now that we have entered the 2018 calendar year, this article is a timely reminder of the issues facing women when saving for retirement because, apart from two very significant exceptions, the current batch of policy makers are continuing to make superannuation-related decisions that ignore the female half of the population. The two significant exceptions, that is, superannuation policies that can really help women, are:
- Compulsory super increasing from 9.5% to 12%, went to 9.5% from July 2014 until June 2021, and then steadily increasing to 12% by July 2025. Although Superannuation Guarantee is work-based, and not payable while a woman is on maternity leave, a higher rate of SG means that when a woman is working (as is the case for men), she will receive a higher rate of employer super contribution each year. For more information on the SG increase see SuperGuide article Employer super contributions: SG rate 9.5% for 2017/2018 year.
- Refunding super contributions tax (Low Income Super Contribution).This is a fantastic policy that was long overdue when it was first introduce in July 2012. If you earn less than $37,000 a year, and your employer makes concessional (before-tax) superannuation contributions on your behalf, then you can expect a refund of the contributions tax deducted from your super account, paid directly to your superannuation account by the federal government. For more information see SuperGuide article LISTO: Super tax refund for lower-income earners.
Why is tax-free super a non-issue for most women?
Referring back to the opening statement of this column, I will explain why the carrot of tax-free super for over-60s is currently irrelevant for most Australian women nearing retirement.
Since July 2007, Australians aged 60 or over and retired, receive their superannuation benefits tax-free. What the super experts and the federal government don’t say is that you need a lot of superannuation to take advantage of the tax-free super rules for over-60s. If you hold less than $200,000 in super (for the 2017/2018 year) you would have received your super benefits tax-free anyway under the old super rules that applied before July 2007. If you retire before the age of 60, and you have less than $200,000 in super, then you can still receive this super as a tax-free lump sum under the current super rules (for the 2017/2018 year).
For the average Australian woman thinking about retiring now, they hold nowhere near $200,000. Although alarming, my statement is not surprising considering that the Superannuation Guarantee (SG) system was only introduced in 1992, and only required employers to make super contributions representing the equivalent of 9 per cent of an employee’s salary from 1 July 2002. Further, the SG system only helps you if you’re in the workforce. Noting also, that a retirement lump sum of $210,000 in super can generate a retirement income of $33,000 a year until after the age of 92, thanks to the Age Pension (see SuperGuide article Case study: I’m 53. Is it too late to save for my retirement? ).
Also, for many men retiring today, who relied only on SG, they will be seriously underfunded for their retirement and they can also expect to rely mainly on the Age Pension.
I repeat the suggestion that I made earlier in this article: perhaps the solution should not be left to the politicians, or the think tanks, but rather the women who have recently entered retirement and can share with us, what needs to change to make the future retirement of women a more comfortable experience.
For information on how much super you need, see the following SuperGuide articles:
- Financial freedom: Retirement planning in six steps
- How much super do you need to retire comfortably?
- Retirement income: Living on more than $60,000 a year
- How Much Super Is Enough Reckoner
- Retirement income: Come on, how much super do I really need?
- The super challenge: At what age should I retire?
- Life expectancy: Will you outlive your retirement savings?
- Age Pension age increasing to 67 years
- Retirement Age Reckoner: Discover your preservation age and Age Pension age
For case studies on working how much super is enough and how to get there, in lower-income scenarios, see the following SuperGuide articles: