Much has been made of the shortfall in Australian’s superannuation assets and the looming impact it will have in meeting the needs of retiring Australians to fund a sustainable lifestyle once they leave the workforce.
It is a crisis in the making. But what we are seldom reminded of is the current disparity between men and women’s superannuation balances, which on a financial analysis alone, is at crisis point today.
The average superannuation balance at retirement is $197,000 for men, compared with only $105,000 for women.
The disparity begins in the workplace. Data from the Australian Bureau of Statistics show the average full-time working man earns 18.2 per cent more than the average woman1.
Industry Super Australia in its recent submission to the Tax Review, utilising modelling by Rice Warner Actuaries, found that 63 per cent of single women will fall below the comfortable retirement standard even after taking into account their superannuation combined with other savings and the benefit of the pension.
Research shows, too, that we are comparing like with like as men and women are doing the same work, and that gender pay gaps may be attributed to unequal gender representation at different levels across an organisation.
Combined, the impact has a compound effect, which continues when lifestyle choices are subsequently taken into consideration.
Generally speaking, women spend more time out of the paid workforce, often immediately before and after child birth, in addition to the impact child-raising has on career progression.
Indeed, for those women who re-enter the workforce the average retirement age was 50 years, whereas for men it was 58.5 years.
In addition, when they do return to the workforce, the proportion of women working fewer than 15 hours per week reduced as children got older.
Almost half (48 per cent) of mothers of a child aged 0-6 months who had started or returned to work usually worked fewer than 15 hours per week2. This decreased to 22 per cent for mothers of children aged 19-24 months.
Collectively, given that women are paid less, work less but live longer, surely that is a recipe which needs to change.
After all, the tinkering to the eligibility age for the pension will currently see it reach 67 years by 2023.
A single person eligible for the full age pension can expect an income of around $22,365. Conversely, the average annual salary for a woman is $66,346.80.
The difference is a material 66.3 per cent decline. Hence, in funding their retirement, less money is available during the accumulation phase, with the effect that compound growth is reduced, a significant contributor to the final assets available.
Fundamental to the issue of financial inequality is the huge disadvantage placed on the partner who stays at home to look after the children. This person, too, can miss out on career progression, the ability to earn income and make savings.
Champion of change
So as a financial adviser, how can you help? There are a number of simple superannuation mechanisms you can discuss with your clients in helping them plan for their retirement.
Accordingly, if your client has taken time out from employment for whatever reason, and, most importantly, if they believe their spouse identifies as a “champion of change”, ask them about superannuation contribution splitting.
In the context of their partnership, it is a consideration surely worthy of the conversation; it may not be a sacrifice but simply good financial sense.
Indeed, remember, same-sex couples are treated as equitably as married or de facto heterosexual couples when it comes to superannuation entitlements and benefits.
The simple point is that it is up to them to decide if super splitting and/or making a spouse super contribution are a good option worth exploring, where one party may have been out of the workforce and there is clear disparity between super contributions.
For ‘champions’, the opportunity is real, as they can split up to 85 per cent of before tax concessions to their spouse — the one not working.
This includes employer superannuation guarantee contributions and any salary sacrifice contributions made.
Alternatively, post-tax contributions can be made to a spouse’s super fund to fund their retirement savings up to $180,000 per year, or $540,000 over a three-year period, provided eligibility criteria has been met.
Splitting contributions
The mechanism is simple: up to 85 per cent of before-tax contributions may be made to a spouse including:
1) Employer superannuation guarantee contributions and any salary sacrifice contributions you make (up to concession contribution limits), usually made by employees; and
2) Personal contributions that you claim a tax deduction for (up to concession contribution limits) — usually made by self-employed people.
If the client has more than one fund, all concessional contributions made to all their funds are added together and counted towards the cap.
Alternatively, spouse contributions may be made using non concessional — (post-tax) contributions.
Non-concessional contributions include personal contributions for which they do not claim an income tax deduction.
Generally, clients can consider making spouse contributions on behalf of their spouse if either:
1) Their spouse is under 65 years of age; and
2) Their spouse is between 65 to 69 years of age inclusive and meets a work test (i.e. not retired).
The tax outcomes of contributing to a spouse’s superfund will be dependent on their income and the amount contributed. Importantly, you should ensure they seek appropriate tax advice.
Words into action
One wonders, assuming it passes the financial advice test, whether many ‘champions’ will walk that talk.
It certainly acts as a regular reminder for the contributing spouse of the inequity that is ever present in the workplace with respect to discriminatory salary bands and broader workplace practices, invisible or otherwise, which can create barriers for post-child birth women, or others, seeking to re-enter the workforce.
Let’s not forget the intangible benefits for the partner returning to work. Individually, they know that they are in a stronger financial position and surely that knowledge counts for a lot in terms of building confidence when they take on the other challenges of returning to the workforce.
To effect change is to communicate.
Perhaps it is a case of practising what you preach and elevating the conversation to your champion at home and asking them, subject to financial advice, whether they would be willing to actively contribute, dare I say, compensate, you for the period you may not be working; indeed, even for the period you did, but possibly earned on average 18.2 per cent less.
Above all, the responsibility is up to all of us to identify ways to address the inequity as the choices you make may result in positive and compounding changes for the better.
Deirdre Wroth is the head of banking and wealth management at Citi Australia.
FOOTNOTES
1. Australian Bureau of Statistics (Cat No. 6302.0) based on full time, adult, ordinary time earnings in May 2014, released 14 August 2014.
2. ABS Pregnancy and Employment Transitions, November 2011.
