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It’s no secret that women retire with less super on average than men, due to three strikes that hit women for six.
Women earn less on average than men so receive lower compulsory employer contributions; they are more likely to take time out of the paid workforce to care for family; and they live longer than men on average, so their retirement savings need to stretch further.
Divorce can add to women’s economic disadvantage. This is especially so for mothers, even though the super balances of divorcing couples may be split. According to an AMP-NATSEM study, divorced women with children had 37% less super than divorced dads from similar age groups and socio-economic backgrounds, and 68% less super than married mums.
Mind the super gap
Although the gender pay gap is decreasing, in 2021 women in full-time work still took home 14%, or $13,275 per year, less than men on average. This is compounded by women missing out on super payments during maternity leave or while taking time out to raise a family or care for elderly parents.
So it’s hardly surprising that by the time women approach retirement their median super balance between the ages of 60 and 64 is 30% less that of men the same age. The median balance is one where half of all balances are higher and half are lower.
Like the wage gap, the super gap between men and women is closing, but women have smaller account balances on average at all ages.
According to the ATOs latest superannuation statistics, the median account balance for all women is just $45,634, compared to $56,425 for men. By age 60–64, women have a median balance of $139,056 compared with $180,928 for men. One in four women retire with no super at all.
Women’s lower super retirement balances are reflected in the fact that they are more likely to be dependent on the Age Pension or their husband’s super in retirement.
These disadvantages are cumulative, and can add up to a frugal retirement, especially for single women.
There is no quick fix to the inequality built into a super system designed around the work patterns of full-time male employees. Even so, recent changes to the super rules which came into force on 1 July 2022 are a step in the right direction.
Super measures supporting women’s super
The Superannuation Guarantee (SG) rate determines the percentage of an employee’s earnings that must be paid as a super contribution by their employer. The SG is scheduled to rise by 0.5% per year until it reaches 12% from 1 July 2025.
This measure will ensure better retirement outcomes for all workers, but especially young people and women who need to rebuild their super after withdrawing savings during the pandemic or taking time out of the workforce to raise their children.
Other measures to boost women’s retirement savings and increase flexibility for all super members include:
- Removing the $450 per month earnings threshold for payment of the SG
- Removing the work test so retirees aged 67–74 can make super contributions
- Extending the downsizer scheme to those aged 55 (previously 65 and over)
- Allowing lump sum withdrawals from the Home Equity Access Scheme (previously only regular income withdrawals were permitted).
The last two measures allow asset rich/cash poor retirees, many of them single women, to access some of the equity in their home.
While the government is taking steps to help close the gender super gap, some super funds have been quietly doing their bit too.
Super funds offer benefits for women and families
Superannuation ratings and comparison group, SuperRatings recently compiled a snapshot of key member benefits some funds are offering women and parents. The most common benefits are administration fee and insurance premium breaks to help young parents get over the ‘baby bump’.
As you can see from the table below, the funds offering benefits to parents tend to be start-up funds targeting younger members, often with an ethical bent, such as Future Super and Cruelty Free Super. Verve Super targets ethically minded women. Grow Super is a digital platform while Virgin Super is part of the Virgin Money group. Also represented are large industry funds which traditionally cater to a mostly female membership such as CareSuper, HESTA and Hostplus.
While the sums on offer aren’t huge, every dollar saved for retirement helps. This is especially so for younger members who will potentially benefit from 30-plus years of compound interest.
Parental leave is not the only circumstance where funds are able to offer insurance benefits.
Additional insurance cover for life events
SuperRatings also found 75% of funds offer members the opportunity to apply for additional insurance cover, without a medical examination, for certain life stages.
Typically, the events covered include marriage, birth of a child and first mortgage. However, just over a third of funds also offer additional insurance cover without a medical examination for a salary increase.
Following a life event, most funds require an application for additional insurance cover be made within either 60 or 90 days. A small portion of funds require an application within 30 days, while others offer an extended application period of 180 days or more.
Additional insurance cover and other benefits available for women, parents and younger members underline the importance of getting engaged with your super as early as possible so you don’t miss out on opportunities to boost your retirement savings.
Member benefits are also worth keeping in mind when choosing a fund.
Super strategies for women
With the odds stacked against them, what can a woman do to improve her retirement prospects?
Quite a bit as it turns out and it’s never too late, or too early, to start closing the gap. Here are some suggested strategies for women at different ages and stages of life.
When you are starting out in the workforce, perhaps planning to marry or start a family, it’s understandable that super and retirement are not front-of-mind. Your financial priorities at this stage of life are more likely to be saving for a car, a trip, a home deposit or preparing for the birth of a child.
Apart from competing financial priorities, when retirement is still 30 or 40 years away super can seem too hard or too boring to contemplate. But ignoring super now can cost you dearly at retirement due to the compounding effect of being in a poorly performing fund or an investment option that is out of step with your needs.
Thankfully, curiosity costs nothing and that’s the best place to start closing the super gap.
Do some fact-finding
To make the most of super you need to understand it, beginning with your current super fund. If you’re not sure what fund you are in, or if you think you may have more than one fund, you can find out by logging in to your myGov account, clicking ATO and then super.
If you have had a series of jobs over the years, chances are you’ve left a trail of super accounts. Consolidating your super by rolling all your super into one fund can save you in fees and have more money working for you. But first, you need to complete your fact-finding mission.
- Dig out your most recent annual statement or check your account online to find out how your money is invested, the returns you have earned over various time frames and the fees you are paying. Even small differences in fees early in your working life can punch a big hole in your retirement savings decades later.
- Have a good stickybeak around the website, play with the online calculators and make sure all your personal information is correct.
- Understand how much your employer should be contributing on your behalf and check that their Superannuation Guarantee (SG) payments are landing in your account on time.
- Check to see if you have insurance cover and, if so, how much and what you are paying for it.
- If there is anything you don’t understand, pick up the phone and speak to your fund’s member hotline or use the online chat function.
Once you have the facts, you may want to dig a little deeper to find out how super works and how to get the most out of it. If you have already made your way to the SuperGuide website, you’re on the right track. Continue browsing super content online, read books on super and investment, and seek independent financial advice if appropriate.
Remember, there are no stupid questions. Just make sure the information sources you use are genuinely independent and not trying to sell you products and services you don’t need or want.
Plan for lean years
If you earn good money and plan to take maternity leave or time out of the workforce for any reason, consider putting a little extra into super now to make up for future lost earnings. See ‘Make extra contributions while you can’ below.
While it’s true that a man is not a financial plan, your partner may be able to top up your super while your income is low or non-existent.
If you earn less than $37,000, your other half can contribute to your super and claim a tax offset of up to $540. The offset phases out once you earn $40,000 or more. This is called the spouse tax offset but it is open to married, de facto and same sex couples.
By mid-life, it’s not just waistlines that have grown, so has the super gap. By their early 40s, women have 27% less super than men on average. In their early 50s the gap is close to 32%.
It is also around this time that many women return to full or part-time work after caring for children. Others who have not taken a career break may find they have more money to save and invest after building up equity in their home. Whatever your personal circumstances, retirement is not as distant as it was.
If you haven’t paid much attention to super up to this point, start by following the steps outlined above. Then turn your attention to some simple strategies to boost your retirement savings.
Speak with your employer about directing some of your pre-tax salary into super. These salary-sacrifice contributions are taxed at the concessional super rate of 15% (30% if your earnings plus concessional super contributions are over $250,000) instead of your marginal tax rate. When you finally retire you can withdraw your money tax free from age 60. Not so much a sacrifice as a tax-effective way to boost retirement savings.
Just remember to stay within your concessional contributions cap of $27,500 a year, which includes compulsory SG payments made by your employer.
Don’t look a gift horse in the mouth
If you earn less than $58,445 a year and make a personal (after-tax) contribution to your super account, the government will chip in up to $500. To receive the maximum government co-contribution, you need to earn less than $43,445 and contribute at least $1,000 during the financial year.
The government co-contribution decreases the more you earn and phases out once you earn $58,445 (these thresholds are for the 2023–24 financial year and only apply if your total super balance was less than $1.9 million on June 30 the previous financial year).
This is possibly the only legal way you will ever earn a guaranteed 50% return on your money.
Make extra contributions when you can
Thanks to the magic of compound interest, even small amounts of money invested early can make a big difference in the long run. Being forty-something may not feel young, but you still have plenty of time to feather your super nest before you retire.
When your budget allows, or you receive a windfall, consider putting a little extra in super.
- You can make a tax-deductible contribution up to the $27,500 annual concessional cap, but be aware that this cap includes employer contributions and salary sacrifice.
- You can also contribute up to $110,000 a year after tax or $330,000 in any three-year period. You can’t claim it as a tax deduction, but earnings on your savings will be taxed at the super rate of 15% rather than your marginal rate and you can withdraw the money tax free in retirement.
If you are on low or no income and have a higher-earning partner, don’t forget spouse contributions (see above).
Women nearing retirement
Once you turn 50, the reality hits that retirement is not far off. Although today’s 50-somethings won’t be eligible for the Age Pension until they turn 66 years and 6 months, you can you access your super when you reach your preservation age, between age 56 and 60, depending on your date of birth.
If you want to retire with enough money to live well and retire while you are still young and healthy enough to enjoy it, your super may need an injection of funds. This may be easier to manage now if your kids are adults, your home is paid off or close to it, and you have more disposable income.
Whatever your situation, any extra attention you can give your super will improve your level of comfort in retirement.
Make up for lost ground
New rules provide an opportunity for low-income earners or anyone who has taken time out of the workforce to play catch-up and make additional super contributions at concessional rates.
As previously mentioned, there is an annual $27,500 cap on concessional (pre-tax) super contributions. This includes employer SG contributions, salary-sacrifice and voluntary contributions. But from 1 July 2018 you can carry forward unused concessional contributions for up to five years, provided your super balance was under $500,000 on 30 June in the year before you make any additional contributions.
As well as boosting your retirement savings, any voluntary concessional contributions you make are tax deductible, so make the most of this opportunity.
Transition to retirement (TTR)
Have you ever dreamed of winding back your working hours but don’t think you could afford it? A TTR pension could help you do just that. While not as tax effective as they were prior to a recent change in the rules, they may still serve a purpose for some people.
In a nutshell, you can withdraw part of your super as an income stream called a TTR or TRIS pension and use this to replace salary income if you wind back your hours. Or you could continue to work full time, draw a TTR pension and replenish your super via salary sacrifice, effectively replacing after tax income with pre-tax income.
You can start a TTR pension by transferring part of your super into a pension account once you reach preservation age (between 55 and 60 depending on your birth date), although they work best once you turn 60 and can receive the income tax free. If you are younger than 60, then the taxable portion of your pension income will be taxed at your marginal tax rate, less a 15% tax offset.
If you think a TTR pension could work for you, contact your super fund or adviser to help crunch the numbers.
Downsize your home, upsize your super
As a final super blitz as you cross the threshold into retirement you can now tip some of the proceeds from the sale of your family home into super. This could suit singles or couples who plan to downsize to a smaller home or sell up and hit the road.
If you are 55 or older you may be able to make a downsizer contribution to your super of up to $300,000 from the proceeds of selling your home. Couples could contribute up to $600,000. This will not count towards your concessional or non-concessional contribution caps. It can only be used once, it is not tax deductible and it will count towards your eligibility for the Age Pension.
While our current superannuation and retirement system disadvantages women, there are still ways to boost your retirement savings. Whatever your age or stage of life, the sooner you get cracking the more options you will have in retirement.