A not-so-rosy retirement for women?

What influences women's ability to grow their superannuation?

Many of us look forward to retirement as an opportunity to slow down and ‘smell the roses’, but recently published reports indicate that women may have less to look forward to at retirement than men

The facts speak for themselves.

Women’s full-time base salaries in 2014/15 were, on average, $17,243 per annum less than men’s and $27,254 per annum less when bonuses and superannuation were included.*

Not surprisingly women’s average superannuation entitlements lag the male averages also. For those aged 25 to 34, the gap is relatively small (just over $5,000 in 2013/14), but widens significantly for those aged between 55 and 64 to a difference of around $142,000 (the average superannuation balance in 2013/14 was approximately $180,000 for women and $322,000 for men).

With this issue in mind, in August last year the Senate Standing Committee on Economics (the Committee) was asked to examine the economic security of women in retirement. The Committee, in its report delivered to the Government in April 2016, noted that there are many interrelated factors (including lower paid roles, part-time employment and time out of the workforce) that contribute to lower superannuation balances for women at retirement.*

In this article we explain some of the issues that arise for women in relation to their retirement funding.

A key issue in addressing the retirement savings gap is rectifying the wages gap in the first place.

Wages gap leads to retirement savings gap

A key feature of the Australian superannuation system is the compulsory employer contribution regime, also known as the Superannuation Guarantee (SG). Broadly, employers are required to contribute an additional 9.5 per cent of an employee’s salary to their superannuation fund each quarter.

A consequence of superannuation contributions being a percentage of wages and a workforce that rewards women on average $17,243 less per annum than men, is that women’s superannuation entitlements will accrue at a lower rate: 9.5 per cent of $17,243 equates to $1,392 (after tax) less contributed to superannuation each year. Over the long term, this difference compounds significantly, as illustrated in this chart.

Example 1

Example 1

Kate and Tom, both age 30, work full time earning $73,000 and $90,000 respectively (i.e. roughly the average salaries for females and males based on WGEA* data). Kate has a superannuation balance of $25,000, while Tom’s superannuation balance is $30,000 (approximate average superannuation balances based on ABS data).

Their respective employers each make compulsory superannuation contributions on their behalf and they both plan to work continuously until the age of 65. If they don’t make any other superannuation contributions, at retirement Kate will have approximately $648,000 in superannuation, while Tom will have more than $795,000 in superannuation. That’s a difference of $147,000.

Refer to the Appendix for the assumptions used in these calculations.

A key issue in addressing the retirement savings gap is rectifying the wages gap in the first place. The Committee has recommended the Government review the effectiveness of Equal Remuneration Orders made under the Fair Work legislation and continue to support the work of the Workplace Gender Equality Agency (WGEA), which assists organisations in developing strategies to narrow the gender pay gap.

Time out of the workforce and periods of part-time work also have an impact.

Reduced time in the workforce leads to retirement savings gap

Lower wages on a like-by-like comparison basis (e.g. full-time employment) is just one issue affecting women’s superannuation balances. Time out of the workforce and periods of part-time work also have an impact.

The difference in Kate’s superannuation balance is illustrated in this chart – refer to the Appendix for assumptions used in these calculations.

Assume that Kate, in raising two children, takes two years out of the workforce and works part time for six years. As a result, her super balance accumulates to approximately $558,000 at retirement, which is $90,000 less than if she worked full time continuously until age 65, and $237,000 less than Tom’s superannuation balance at retirement (see Example 1 above).

Further increases in workforce participation for women will also assist in improving superannuation balances at retirement. To achieve this, the Committee has recommended extending discrimination laws relating to pregnancy and family responsibilities, providing more flexible working arrangements and reviewing the way in which income tax, family assistance and child care costs can provide a disincentive for women to return to the workforce.


The Committee also recommended a range of superannuation-related measures that aim to address the adequacy of women’s retirement savings, including:

- Retaining the Low Income Superannuation Contribution (LISC) of up to $500 per annum, which is designed to compensate low income earners (ie less than $37,000 per annum) for the tax payable on their SG contributions. The LISC is currently legislated to be removed with effect from 1 July 2017.
- Extending SG contributions to the Commonwealth Paid Parental Leave Scheme.
- Setting an objective for the superannuation system that includes specific reference to women’s retirement incomes.
- Providing a more equitable distribution of superannuation tax concessions and assist those with lower superannuation balances achieve a more comfortable retirement.
- Requiring employers to make SG contributions for all employees, including those who earn less than $450 per month.
- Bringing forward the timeframe for increasing the SG contribution rate to 12 per cent. Currently, the SG rate is legislated to increase by 0.5 per cent per year from 1 July 2021 until it reaches 12 per cent on 1 July 2025.
- Amending discrimination legislation to allow employers to make additional superannuation contributions for female employees.

2016 Federal Budget

Subsequent to the Committee’s recommendations, the Government’s 2016 Federal Budget announcement also included several measures aimed at improving superannuation savings for women, including:

The introduction of a Low Income Superannuation Tax Offset (LISTO) to reduce tax on superannuation contributions for low income earners. This offset will be capped at $500 and is proposed to replace the LISC from 1 July 2017.

Increasing the income threshold used to determine eligibility for the Spouse Contribution Tax Offset. The offset provides a benefit of up to $540 for those who make additional superannuation contributions on behalf of a low income spouse. The full offset is currently available where the spouse’s income is income below $10,800 - this threshold is proposed to be increased to $37,000.

Allowing those with superannuation balances of less than $500,000 to make catch-up concessional contributions (such as salary sacrifice or personal contributions claimed as a tax deduction) where they have not previously used their concessional contribution cap. Currently, a cap applies to the amount of concessional superannuation contributions an individual can make each year and any unused cap is forfeited if it is not used within that year. It is proposed that any unused cap will be able to be carried forward for five years from 1 July 2017.

While the Government’s proposals will not exclusively benefit women, measures such as the LISTO and Spouse Contribution Tax Offset are potentially of greater benefit to women than men,as a large proportion of low income earners and part-time employees are female.

The measures proposed in the Budget would, at least in part, assist in increasing superannuation balances at retirement for some women. However, on their own, they do not completely address the gap in superannuation benefits. For example, in Kate’s situation, her partner would only be eligible for the Spouse Contribution Tax Offset in the two years where she is not working.

Assuming her partner makes a spouse contribution of $3,000 in each of those years, this would provide Kate with just under $20,000 extra in superannuation benefits at retirement. However, she would not benefit from the introduction of the LISTO, as her income will be too high. In addition, the benefit of being able to make catch-up concessional contributions is dependent on Kate having surplus income available to fund additional contributions.

Additional voluntary savings can reduce the retirement savings gap

While income and time in the workforce impact the ability to accumulate superannuation benefits, the Australian superannuation system provides incentives to increase the level of savings beyond the compulsory employer SG contribution level.

For women and men alike, the earlier contributions are made to superannuation, the more opportunity there is to take advantage of the tax concessions associated with the superannuation system. And the more contributed, the greater the final benefit accrued will be. A little extra contributed to superannuation each pay cycle can make a big difference at retirement, as illustrated in this chart.

Kate begins contributing an extra $150 per month ($1,800 per annum) to superannuation via a ‘salary sacrifice’ arrangement with her employer from the age of 30 and continues each year she is working.

As a result Kate will have approximately $668,000 in superannuation benefits at retirement. That’s $110,000 more than in Example 2 and approximately $20,000 more than in Example 1 where she works full time until age 65.

Refer to the Appendix for assumptions used in these calculations.

Next steps

A number of the Committee’s recommendations appear to have been addressed by the Government in the 2016 Federal Budget. However, these measures, and any other Committee recommendations the Government decides to adopt, are yet to become law.

Although it may narrow the gap, legislative reform is unlikely to completely close it. In a retirement savings system based on contributions as a percentage of wages, time out of the workforce and part-time work inherently impacts on the accumulation of retirement savings. Those individuals, including many women, who are likely to be impacted by these issues may choose to make voluntary contributions to help close the gap further.

The ability to make additional voluntary contributions is an integral feature of our retirement savings system. Those who are in the workforce full time for their entire working life are unlikely to accumulate adequate retirement savings via compulsory SG contributions alone to maintain their standard of living throughout retirement. The current SG rate of 9.5 per cent is generally considered to be insufficient to achieve this.

Some level of voluntary savings towards retirement is generally required to maintain an individual’s pre-retirement standard of living. Just how much extra should be contributed will depend on the individual’s personal circumstances, including issues such as time out of the workforce and part-time work, amongst others.

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The following assumptions are used in each of the examples above:
· earnings rate in each case is 7.36 per cent (before tax and net of fees)
· earnings are made up of 38 per cent income (27 per cent of which is fully franked dividends) and 62 per cent capital growth
· income is taxed at 15 per cent inside super
· capital gains qualify for the capital gains tax (CGT) discount (of 33 1/3 per cent inside super)
· all figures are in today’s dollars (assuming the Consumer Price Index (CPI) increases at the rate of 2.5 per cent per annum)
· contributions are made evenly throughout each year.

* Workplace Gender Equality Agency (WGEA), Australia’s gender equality scorecard – Key Findings from the Workplace Gender Equality Agency’s 2014-15 reporting data, November 2015

** Australian Bureau of Statistics (ABS), 4125.0 Gender Indicators Australia - Table 25 Superannuation balance at, or approaching preservation age, 55-64 years 2003-04 to 2013-14, August 2015

*** Senate Economics References Committee, 'A husband is not a retirement plan' Achieving economic security for women in retirement, April 2016

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