Bridging the gap: Women and super

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Upon reaching retirement, you will often find that a shift occurs in terms of how you will fund your lifestyle moving forward. Namely, a shift from employment income to income derived from other sources, such as retirement savings (i.e. superannuation and/or other investments) and potential Age Pension entitlements.

One of the risks facing retirees is the potential to run out of money in their retirement savings by living longer than expected; this is commonly referred to as longevity risk. Importantly, if this were to occur, upon reaching this point they may need to start relying on the Age Pension to fund their (albeit reduced) lifestyle in their remaining retirement years.

Notably, the overall aim of the Age Pension is to ensure senior Australians can meet basic lifestyle expenses. According to ASFA’s Retirement Standard, the maximum total pension rate of the Age Pension provides singles and couples with income that allows them to maintain a standard of living just below a modest lifestyle in retirement. For example:

  • The maximum total pension rate (including Pension Supplement and Energy Supplement) for a single person is $23,597.60 p.a. or $35,573.20 p.a. total for a couple. Please note: If a couple is separated due to illness they are each entitled to the single rate.
  • In contrast to the Age Pension, according to ASFA’s Retirement Standard,
    • A modest lifestyle requires an income of $27,425 p.a. for a single person or $39,442 p.a. total for a couple, and
    • A comfortable lifestyle requires an income of $42,953 p.a. for a single person or $60,604 p.a. total for a couple.

Women and superannuation

When compared to men, longevity risk may be a more pressing concern for some women (particularly single women). This is due to several unique and interconnected considerations.

Gender pay gap

Although times are changing, Australia’s gender pay gap still stands at 14.6%. According to the Workplace Gender Equality Agency, the gender pay gap is influenced by numerous factors. For example:

  • ‘Discrimination and bias in hiring and pay decisions;
  • Women and men working in different industries and different jobs, with female-dominated industries and jobs attracting lower wages;
  • Women’s disproportionate share of unpaid caring and domestic work;
  • Lack of workplace flexibility to accommodate caring and other responsibilities, especially in senior roles; and,
  • Women’s greater time out of the workforce impacting career progression and opportunities.’

Life expectancy

Australians are living longer than ever. Despite this, there is still a noticeable difference in terms of the average life expectancy of women and men. According to the Australian Bureau of Statistics, a 65 year old Australian could on average expect to live until age 87.3 (women) and age 84.6 (men). In a retirement context, that’s an expected 22.3 years (women) and/or 19.6 years (men) that needs to be appropriately planned and managed as a single or couple.

Bringing them both together

The accumulation of wealth inside superannuation, in broad terms, is linked to employment. As such, given the gender pay gap, some women may find it challenging to build up their retirement nest egg. This is highlighted in the 2017 Household, Income and Labour Dynamics in Australia (HILDA) Survey. Namely, women are retiring with an average superannuation balance of $230,907, compared to $454,221 for men.

In light of this, coupled with an increased life expectancy, as previously mentioned above, longevity risk may be a more pressing concern for some women (particularly single women). Additionally, this may be further heightened when considering the desire to have a modest or comfortable lifestyle in retirement.

To put this in perspective, ignoring potential Age Pension entitlements, let’s say a female retires at age 65, commences an account-based pension with a $230,907 balance and the underlying assets generate a total net return of 5% p.a. In addition, they opt to exceed more than the minimum percentage drawdown of $11,545.35 p.a. by drawing down (indexed to inflation*):

  • $27,425 p.a. (modest lifestyle, single); account-based pension will last to roughly age 75.
  • $19,721 p.a. (modest lifestyle, couple each); account-based pension will last to roughly age 79.
  • $42,953 p.a. (comfortable lifestyle, single); account-based pension will last to roughly age 71.
  • $30,302 p.a. (comfortable lifestyle, couple each); account-based pension will last to roughly age 74.

*2% for rising cost of living (CPI inflation) + additional 1.2% for rising cost of community living standards.

As you can see from each scenario, when considering average life expectancy there is a potential shortfall in retirement savings (i.e. 12.3 years, 8.3 years, 16.3 years and 13.3 years). This means that upon reaching this point, they may need to rely on the Age Pension or other assets, to fund their (albeit reduced) lifestyle in their remaining retirement years.

 

Moving forward

There have been discussions around bridging the gap that exists between women and men from a legislative point of view. The Australian Government’s Economics References Committee (Senate) published a report in 2016 ‘A husband is not a retirement plan: Achieving economic security for women in retirement'. Some of the recommendations in the report were as follows:

  • Removal of the $450 a month threshold for payment of Superannuation Guarantee.
  • Payment of Superannuation Guarantee on the Commonwealth Paid Parental Leave Scheme.
  • Bringing forward the scheduled raising of the rate of the Superannuation Guarantee to 12%.

Only time will tell whether these recommendations are enshrined in law. In the interim, there are things that you can do to help boost your retirement nest egg now and into the future. Below are some helpful tips:

  • Conduct a search for lost superannuation and if you have multiple superannuation accounts consider whether it would be appropriate to consolidate them.
  • Review your annual superannuation statement.
    • What is your current superannuation balance? (How are you tracking towards your goal?)
    • Does your superannuation fund have your Tax File Number?
    • Are you receiving the correct amount of Superannuation Guarantee from your employer?
    • Does your investment mix match your tolerance to risk and investment time horizon?
    • Does your personal insurance reflect your financial situation, goals and objectives?
    • Are the fees you pay proportionate to what you receive?
  • Consider making your own voluntary superannuation contributions and/or (if applicable) have your spouse do so on your behalf. Even small amounts can have a positive impact on your superannuation balance over time.

Please take the time to review the following areas that may be pertinent to your financial situation, goals and objectives:

  • Salary sacrifice and personal deductible contributions.
  • Low income superannuation tax offset.
  • Government co-contribution.
  • Concessional contributions and the carry forward provision.
  • Non-concessional contributions and the three-year bring forward rule.
  • Spouse contribution.
  • Contribution splitting.
  • Downsizing measure.
  • Small business CGT concessions.

Please note: Given the Transfer Balance Cap, these may be especially important considerations for couples with regards to having tax-free income streams in retirement.

  • Seek help from your professional advice team. Many people have ideas and dreams that are never realised because they’re not planned. To achieve a goal you must plan how to make it happen – we can help with this (inclusive of many of the tips listed above, where applicable).

If you have any questions regarding this article, please do not hesitate to contact us.