First published in The Australian, 20 June 2018
Most people would be aware that when they reach retirement, women will typically have less retirement savings than men and many will not have saved enough for a comfortable retirement.
In Australia, according to the Association of Superannuation Funds, average balances at the time of retirement (aged 60 to 64) in 2015-16 are $270,710 for men and $157,050 for women (42 per cent less).
This is partly due to the lower average earnings of women, with data from the Workplace Gender Equality Agency reporting that the full time remuneration gender pay gap in Australia is 22.4 per cent compared to males. For women, having this knowledge may be just the prompt to see not only how you compare more broadly with those doing a similar role, but more specifically how you compare with males in a similar role.
Many believe this ‘wage gap’ is a gender issue, citing that women are not as strong negotiators as their male counterparts. However, in reality many women negotiate flexibility and accept minimal wage growth as a result. Hopefully this pay gap will become less pronounced in the future as workplace flexibility becomes the new ‘norm’ and is not seen as a reason for women to ‘undercut’ their value.
When it comes to retirement savings, the less money you earn, the less superannuation you will receive because your Superannuation Guarantee contributions are based on your level of income.
The other reason for the retirement gap is that women typically take time out of the workforce to raise children, whether it is a few months or a few years. The absence of ongoing superannuation contributions can have a significant impact on the final amount women typically end up with in super. Further, as a large number of women return to the workforce part-time for a period of time, the gap can be further compounded by super contributions being typically 60-70 per cent less than what they otherwise would have been (reflecting proportionate pay) over the period.
Later in life, there may also be time out or reduced working hours to care for an aged parent.
So what can be done to address the super gap?
The simplest way to catch up for lost contributions is to make additional contributions along the way. The earlier you start this process, the less you will need to make up in top-up contributions. Small amounts over longer periods of time can be easier to commit to. For example, making an additional 2-3 per cent in additional contributions prior to having children may be enough to narrow the gap caused by taking time out for the workforce.
If you are getting closer to retirement you may consider maximising the amount you are contributing each year in before-tax contributions up to the $25,000 limit.
In addition, it’s worth considering if you are in the most competitive super fund, which meets your needs, including the level of insurance cover you have and whether you need to reduce this if you no longer need the cover. Consider the fee structure of the super fund and also pay attention to how your super is invested. For example, if you have a long time until retirement you may benefit from increasing your exposure to growth assets. And while past returns are not an indicator of future returns, it is prudent to keep a track of your investment returns and make changes where appropriate.
For women in relationships, a problem shared could be a retirement gap closed. This is because your spouse can split up to 85 per cent of you concessional contributions each year with you. Further if you earn less than $40,000 per annum your spouse may be eligible for a tax offset of up to $540 for a $3,000 contribution (made with after-tax money).
Finally, don’t forget to check if you have any lost super, you can do this by having a look at the MyGov website, chatting with your super fund or going to any Westpac branch. According to the BT Financial Health Index (April 2018) the average amount found in lost super by each person is over $7,000 and a little will go a long way if invested effectively over the long-term.
Some tips to consider on your path to closing the pay gap:
Tip 1: See how your salary compares with those doing a similar role and seek out regular reviews.
Tip 2: You may wish to consider making an additional 2-3 per cent of your salary each year in additional super contributions before taking time out of the workforce. Alternatively maximise your salary sacrifice or tax-deductible contributions in the lead up to retirement.
Tip 3: Take control of your super as soon as possible and make the most of any additional funds available, little changes early on can make big differences over the longer term.
Helena Gibson is Head of Public Policy and Technical Services at BT Financial Group.
This has been prepared by Helena Gibson, Head of Public Policy and Technical Services at BT Financial Group, a division of Westpac Banking Corporation ABN 33 007 457 141. Information is current as at June 2018. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.