Superannuation is an important part of financial planning for retirement, but in Australia there is a significant gap between the superannuation balances of men and women.
This gap, known as the superannuation gap or the gender super gap, recognises the difference in the average superannuation balances between men and women. According to recent studies, the superannuation gap in Australia is significant, with women retiring with a median superannuation balance of $146,900 compared to $204,107 for men, resulting in a gap of 28 per cent.
There are several reasons for the super gap. Firstly, unfortunately women still tend to earn less than men, which means they have less money to put into their superannuation accounts. Women are also more likely to work part-time or in casual positions, which offer lower wages and fewer benefits, such as superannuation contributions.
Additionally, women are more likely to take time off work to care for children or other family members, which can result in a significant reduction in their superannuation contributions.
Another reason for the super gap is that women are more likely to work in industries with lower-paid jobs or in occupations that don’t offer the same level of superannuation benefits as other industries. There’s also a systemic issue with the superannuation system in Australia that contributes to the super gap.
The current system is based on a model in which employees receive superannuation contributions from their employer, but this system does not account for those who work in part-time or casual positions. This means that women who work in these positions are more likely to miss out on superannuation contributions.
The Australian Workplace Gender Equality Agency reports that at every age fewer than 50 per cent of women are in the workforce full time. In our business, more than 70 per cent of our client base identify as female, including many singles and couples where the female is the driving
force in seeking advice.
As a result, this is a conversation we are encouraging with our clients. There is some very generic advice out there for bridging the super gap, such as consolidating super to avoid unnecessary fees and negotiate higher salaries.
Insufficient Funds by James Millard.
How to close the superannuation gender gap
Despite the disadvantages women face with superannuation there are fortunately some really great strategies to help address this gap as individuals. Here are the most common four:
1. Government co-contribution
You are able to make a non-concessional (post-tax) contribution, currently up to $1000, and the government will match this with up to $500 contributed to your super fund. There is a low-income threshold but it can often be employed, especially in times out of the workforce or when working part-time.
2. Spouse contributions
This works for couples where the higher earner contributes money into the lower earning partner’s super fund, and the higher earner receives a tax offset for this.
3. Contribution splitting
Again for couples, where the higher earning partner has already made concessional (pre-tax) contributions to their super fund and can then split up to 85 per cent of these into the lower earning partner’s fund. This can help to equalise your super balances over time and is particularly beneficial when one partner is working part-time or casually on lesser income.
4. Carry-forward (or catch-up) contributions
A client was contributing above her concessional contribution cap to pump her super. She was using up some of her ‘carry-forward’ allowance. The same strategy can apply when looking to bolster one partner’s super balance.
If you’ve been working part-time, casually or not at all recently, you’ll likely have a significant available limit here as it builds up over five years. So, as long as you have the cash available, you can action this if you’re single or a couple. If partnered, it doesn’t matter whose bank account it’s in or where it came from.
One common question from couples is, “If we have spare cash to contribute to super and get a tax benefit for this, why would we put it in my account when I pay less tax?” This is a very valid point. However, what it doesn’t take into account is the ‘transfer balance cap’, where if one partner exceeds this and the other doesn’t then you end up in an inefficient tax position, post-retirement, in perpetuity.
It also doesn’t take into account the financial insecurity the lower earning, often female, spouse feels knowing that their partner’s balance is
going to be so much higher at retirement despite decades of partnership in building this plan together.
There is no right or wrong answer here however, it is an important conversation to have.
This is an edited extract from the book Insufficient Funds by financial adviser James Millard. Find out more at sufficientfunds.com.au