Shaw, Kim --- "Women and superannuation: A persisting chasm" [2022] PrecedentAULA 30; (2022) 170 Precedent 26

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WOMEN AND SUPERANNUATION

A PERSISTING CHASM

By Kim Shaw

The super gender gap is a persisting chasm. For working women in Australia, the gap between economic security and poverty has long been an issue, and is still a harsh reality today.

SUPERANNUATION IN AUSTRALIA: A HISTORY

In Australia today there are three pillars providing income in retirement: the age pension, personal savings and universal superannuation.^[1] Given the modernity and sophistication of our economy and society, as the Australian Institute of Superannuation Trustees (AIST) notes, ‘Retirees unsurprisingly expect to live a meaningful life of dignity that allows them to fully participate in Australian society.’^[2]

Some 40 years ago, for many Australians one of those pillars was missing. During the 1980s superannuation was not widespread and could not be transferred between different employers. It was limited to public servants and white-collar employees of large corporations, and was not compulsory. The majority of working Australians had to rely, in their post-employment lives, on personal savings or the age pension, or a combination of both.

The universal superannuation guarantee system commenced in 1992, requiring a contribution by employers to a super fund on their employees’ behalf at a rate of 3 per cent; this gradually increased to the current rate of 10 per cent per annum, commencing from 1 July 2021. This also meant that superannuation could be transferred to other employers when workers moved to new positions.

The compulsory superannuation system effectively provides working Australians with the opportunity to pool capital in order to invest, with the super fund managing the investments on their behalf. The effect of compulsory contributions compounds year on year and has become a cornerstone of Australia’s economy and a valuable pillar of retirement income for the majority of Australia’s working population. Superannuation assets totalled $3.5 trillion at the end of the December 2021 quarter.^[3]

Compulsory superannuation has overall been successful in coverage for Australian workers, with around 90 per cent of the working population covered by compulsory employer paid superannuation, as opposed to only 30 per cent when this was first introduced.^[4] However, there are structural challenges impacting women specifically. This article will outline some of those challenges, and discuss what has been done and can be done to address them.

SUPERANNUATION AND WOMEN – STRUCTURAL CHALLENGES

In April 2016 the Senate Economics References Committee (Committee) produced a report articulating many of the problems with the Australian income retirement system (including the superannuation pillar). These problems, as noted in the report, mean that many Australian women face an insecure retirement:

‘Men's superannuation balances at retirement are on average twice as large as women's. In practice this means that women, particularly single women, are at greater risk of experiencing poverty, housing stress and homelessness in retirement. ... Over their lifetimes ... they will earn significantly less than men.

Australia's retirement income system does not adequately accommodate this difference. It structurally favours higher income earners who work full-time, without breaks, for the entirety of their working life. The women (and men) who do not fit this pattern of work face a significant handicap when saving for their retirement.

The causes of gender inequality in retirement are complex, and a solution is correspondingly complex. While there are no simple answers, the committee is of the view that Australia needs to redouble its efforts to achieve equality at work – paying women equally, offering access to career development and leadership opportunities, and accommodating rather than penalising those who care for others.’^[5]

The difference between the super savings of men and women has become known as the super gender gap.

The Committee made a number of recommendations intended to support women to ‘increase their participation in the workforce and improve their superannuation savings as a means of achieving dignity and economic security in retirement.’^[6]

In its 2017 publication, Not So Super, For Women,^[7] the Per Capita think tank reported on its investigation, in collaboration with the Australian Services Union, into the experiences of women with superannuation. The authors found that ‘[f]or many women, retirement looms as a frightening prospect’.^[8]

They also noted:

‘There is no single explanation. It is a wicked problem – amongst the many causes are the gender pay gap, the rise in casualised work, regressive tax treatments, unpaid care work and relationship breakdowns. A striking finding is that mothers are more likely to experience many more of these barriers than fathers or men and women without children.’^[9]

The situation showed little improvement over the next four years. In January 2021, the AIST in its 2021–2022 Pre-Budget Submission to the Minister for Housing and Assistant Treasurer outlined the following ‘key factors’ contributing to the super gender gap:

‘

• Women comprise just under 70% of the part‐time workforce, with more (54.6%) employed part time than full time (45.38%).

• Women are six times more likely to reduce their work hours due to parenting duties compared to men.

• Women working full‐time earn 14% less than men.

• The average working woman has more than 4 career breaks over a lifetime (mostly taken at age 33 and lasting 17.6 months). Career breaks cost women’s retirement balance on average $159,590. Top reasons for career breaks among women are maternity leave (50%) and caring for a child (49%)’.^[10]

In the same vein, the need to tackle inequity in super was one of the key recommendations of Industry Super Australia in its Policy Priorities of December 2021.^[11] It noted that women are retiring with about 30 per cent less super than men.^[12] It set out the causes along similar lines to those highlighted by the AIST:

‘[w]omen spend more time out of the workforce than men and earn less than men while they are working ... On average, women retire with about $67,000 less than men. One in three women retire with no super at all. This has significant consequences for women’s financial security in retirement, while taxpayers also bear the impact with women over-represented in pension payments. Unless action is taken, the gender super gap is estimated to exist out to 2061 and beyond.’^[13]

THE SUPER GENDER GAP

The advocacy group Women in Super has identified, in its eponymous report,^[14] five reasons women have less superannuation than men:

1. Lower rates of workforce participation;

2. Motherhood and caring responsibilities;

3. Superannuation inequalities, including during maternity leave;

4. A taxation policy where tax concessions for superannuation favour high income earners; and

5. The gender pay gap.^[15]

The gender pay gap is currently sitting at 14.2 per cent,^[16] given that the superannuation guarantee contribution is paid based on a proportion of income.

The organisations and think tanks referred to above are just some of those raising awareness of the super gender gap and its causes. The issues they raise today have been highlighted and discussed for more than a quarter century. However, while these organisations and other bodies have made recommendations to address the challenges, government has been slow to take any steps to address them.

THE IMPACT OF THE PANDEMIC

The COVID-19 pandemic has served to exacerbate women’s issues with superannuation.

It was announced on 22 March 2020 that the federal Government would allow superannuation fund members to apply for an early release of super. This program enabled members to apply for up to $10,000 in two tranches – between 20 April and 30 June 2020, and 1 July and 31 December 2020.^[17] The purpose was to ‘support people whose finances were adversely impacted by COVID-19.’^[18]

To be eligible for early release, members were required to satisfy certain conditions, including being unemployed; being eligible for Centrelink benefits; having been made redundant; or having a business that was severely impacted.^[19] Overall there were a total of 4.9 million applications for early release of funds, with about $36.4 billion removed from members’ accounts.^[20]

In analysing the impact on women specifically, the AIST noted in its 2021–2022 Pre-Budget Submission:

‘[w]hile more men than women made an early release application, women withdrew more than men on average, accounting for a higher portion of their already lower balance. In fact, women aged 25–34 withdrew 34% of the average balance, while men in the same age bracket withdrew 31% of the average balance. In all age brackets, women on average withdrew a greater proportion of their account balance when compared to men in the same age cohort.’^[21]

Industry Super Australia also touched on the early access program during the COVID-19 pandemic, noting the importance of the preservation rules in super:

‘The recent decision to ask Australians to support themselves during the COVID-19 pandemic by accessing their super early will have long-lasting consequences for workers and the economy.

More than 3 million Australians accessed their super, leaving them tens of thousands of dollars worse off at retirement and leaving future Australians with a bigger pension bill.

Undermining the fundamentals of super like this drags down returns to members, as funds are forced to carry more cash – a lower performing asset – to make the payouts. This not only impacts members but [also] the broader economy, potentially limiting the role funds play in creating jobs and economic growth.’^[22]

RECOMMENDATIONS TO ADDRESS THE CHALLENGES

In its 2016 report, ‘A husband is not a retirement plan’: Achieving economic security for women in retirement, the Senate Economics References Committee made 19 recommendations that were ‘intended to help women increase their participation in the workforce and improve their superannuation savings as a means of achieving dignity and economic security in retirement.’^[23]

These recommendations included that:

• the superannuation guarantee be paid on the Commonwealth Paid Parental Leave Scheme;

• superannuation tax concessions be retargeted to ensure a more equitable distribution; and

the schedule for the increase in superannuation guarantee at specified increments up to 12 per cent be implemented earlier, so that women could experience the impact of compounding interest on a higher contribution more quickly.

Very few of the recommendations were adopted by government.

Various other stakeholder groups, including Per Capita,^[24] Industry Super Australia,^[25] and the AIST,^[26] also made similar recommendations to address the inequity for women in superannuation, including:

• paying superannuation at the prevailing super guarantee charge rate for the government’s paid parental leave scheme at Commonwealth, state and territory level;^[27]

• ‘elimination or reduction of the minimum threshold for compulsory employer contributions of $450 per month in earnings’;^[28]

• review of the super tax concessions frameworks, which currently favour high-income earners; and

• better alignment of the low income superannuation tax offset to match income tax brackets.^[29]

Other reforms advocated for have included including super on paid parental leave schemes at state and territory government level, and advocating for employers to also play a role in addressing inequity by paying superannuation on employer funded parental leave schemes.

WHERE TO FROM HERE?

The need for reform continues in many areas.^[30] For example, there is still a gender gap in women’s retirement savings, and this needs to be addressed:

‘average female account balances have grown over the past 14 years and caught up as a proportion of average male account balances (81% in 2018 compared to 62% in 2004). However a substantial gender gap remains with average female account balances around $15,000 below that of males.’^[31]

The above analysis reflects the ‘average’ of all female account balances; however, it is likely that the gap is even greater for low-income-earning women who predominate in lower paid jobs.

Three key recommendations crucial to addressing the super gender gap are consistently raised by advocates for super fund members:

1. removing the super guarantee exemption for employees who earn less than $450 a month;

2. speeding up the timetabled rates of increase of the super guarantee; and

3. adding super to paid parental leave.

Removing the superannuation guarantee exemption

Until very recently, a worker earning less than $450 per month from one employer was not able to receive compulsory superannuation payments.

One long-advocated recommendation that has been adopted, albeit only recently, is the removal of the exemption from the super guarantee for employees whose salary or wages are less than $450 in a calendar month – this is often the case for women, who are overly represented in part time, casual and lower wage occupations.^[32]

As noted in the Retirement Income Review Final Report in 2020:

‘Around 63 per cent of people earning below the $450-a-month threshold are women. Although removing the $450-a-month threshold would have a small effect on retirement incomes, it would improve gender equity in super guarantee coverage.’^[33]

As part of the 2021–22 Federal Budget, the Australian Government announced that it will:

‘remove the $450 per month threshold to expand the coverage of super guarantee to eligible employees regardless of their monthly pay. The change is now law by the Treasury Laws Amendment (Enhancing Outcomes for Australians and Helping Australian Businesses Invest) Act 2021 with royal assent on 22 February 2022.’^[34]

This will mean that from 1 July 2022 employers will be required to make super guarantee contributions to an eligible employee’s super fund, regardless of how much the employee is paid.^[35]

Increasing the superannuation guarantee rate

Currently the super guarantee laws require employers to pay the equivalent of 10 per cent of ordinary-time earnings.

Increases have been discussed and implemented since the commencement of compulsory super, which started with a mandatory 3 per cent contribution rate in 1992. The rate gradually increased to 9 per cent in 2002 and then to the current rate of 10 per cent in 2022.^[36]

Due to concerns that this would leave too many retirees reliant on the age pension, a gradual increase of the percentage has been legislated to 12 per cent by 2025.^[37]

Some stakeholders have argued that the rates of increase should move more quickly than provided in the current timetable, so that members get the advantage of more quickly compounding interest: a relatively small change in statutory super contributions makes a significant difference to retirement incomes.^[38]

Those who oppose continued increases in compulsory super are concerned, however, that the additional costs on employers will be passed on to employees as lower wages and thus constitute downward pressure on wages growth.

While there continues to be debate around universal superannuation,^[39] it seems clear that raising the superannuation contribution rate together with other reforms will help address the inequity in the system. As one commentator stated in November 2019, when ‘some Liberal backbenchers [were] lobbying to freeze the guarantee at 9.5%’:

‘[t]he problem with super is not that it is too high – it’s that Australians do not have enough. The average Australian will run out of super 10 years before they die and 70% of women have balances under $150,000.

If the government was serious about retirement incomes, it would close the cracks in the system and proceed with the legislated 12% superannuation increase, which will provide millions of Australians with the dignified retirement they deserve.’^[40]

Adding superannuation contributions to paid parental leave schemes

The strong and consistent call for the federal government to pay superannuation on the Commonwealth Parental Leave Pay scheme has not been heeded.

Advocates argue that this has meant upwards of $1.6 billion in contributions has been lost to working mothers over the last decade, and reform is needed.^[41]

This reform would go a considerable way to addressing the super gender gap, as women taking parental leave have no way of clawing back the loss of contributions while away from work. As outlined earlier, not paying super on paid parental leave creates inequity within the system, particularly when most, if not all, other forms of paid leave such as annual leave require a super contribution.

It has been suggested that regulating paid parental leave would address not only the superannuation gap, but other gender gaps as well:

‘Normalising parental leave as part of peoples’ [sic] working life could also contribute to encouraging men to take time off and accept career breaks themselves as a typical part of both having a family and being an employee. This would dramatically help with both the overall pay gap and the superannuation gap, as well as re-balancing peoples’ [sic] home lives.

As Australia starts to emerge out of the pandemic and households can once again plan for the future – be it taking a holiday offshore or welcoming a baby into the family – every policy idea to ensure a better future must be on the table. Paying super on paid parental leave is a no-brainer.’^[42]

CONCLUSION: A PERSISTING AND ‘WICKED’ PROBLEM

In conclusion, the super gender gap is indeed a ‘wicked’^[43] problem, and a persisting one. As noted in this article, advocates have put forward many excellent policy ideas to ensure that the gaps are addressed.

The multi-factorial causes require a multi-faceted approach. There is no single reform, no effective, once-in-a-generation solution. It is also clear, for social and economic reasons, and for the purpose of equity, that advocacy needs to continue.

If it does not, more and more women will miss out on a dignified and economically secure retirement – and that is an unacceptable prospect.

Kim Shaw is a Principal Lawyer and Executive Director at Maurice Blackburn Lawyers. She heads the firm’s Personal Legal Services Division, encompassing Superannuation and Insurance and Wills and Estates Services. Kim is an Accredited Personal Injury Specialist in Victoria and a national Division Head. EMAIL [e-mail].

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^[1] Superannuation is commonly referred to as ‘super’, and both terms are used interchangeably in this article.

^[2] Australian Institute of Superannuation Trustees, ‘AIST submission to the Retirement Income Review’ (AIST), 34 <https://treasury.gov.au/sites/default/files/2020-02/aist030220.pdf>.

^[3] APRA, ‘APRA releases superannuation statistics for December 2021’ (Media release, 1 March 2022) <https://www.apra.gov.au/news-and-publications/apra-releases-superannuation-statistics-for-december-2021#:~:text=Total%20superannuation%20assets&text=Superannuation%20assets%20totalled%20%243.5%20trillion,growth%20achieved%20over%20the%20period>.

^[4] Parliament of Australia, ‘Chronology of superannuation and retirement income in Australia’, 1 June 2010 <https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/0910/ChronSuperannuation>.

^[5] The Senate Economics References Committee, ‘A husband is not a retirement plan’: Achieving economic security for women in retirement (April 2016), xi. <https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Economic_security_for_women_in_retirement/Report>.

^[6] Ibid.

^[7] D Hetherington and W Smith, Not So Super, for Women: Superannuation and Women’s Retirement Outcomes, Per Capita Australia, 2017 <https://percapita.org.au/wp-content/uploads/2018/05/Not-So-Super_FINAL-v2-2.pdf>.

^[8] Ibid, 5.

^[9] Ibid.

^[10] Australian Institute of Superannuation Trustees, AIST 2021–2022 Pre-Budget Submission to the Minister for Housing and Assistant Treasurer, 29 January 2021 (AIST submission), 22 <https://www.aist.asn.au/Media-and-News/News/2021/AIST-2021-2022-Pre-Budget-Submission-to-the-Minist>.

^[11] Industry Super Australia, Policy Priorities (December 2021) <https://www.industrysuper.com/media/policy-priorities-december-2021/>.

^[12] Ibid, 7.

^[13] Ibid.

^[14] Women in Super, 5 Reasons Why Women Have Less Super Than Men <https://www.womeninsuper.com.au/content/5-reasons-why-women-have-less-super-than-men-and-how-to-even-the-scales/gjktnc>.

^[15] Ibid.

^[16] Australian Government Workplace Gender Equality Agency (Finally) Equal Pay Day (31 August 2021) <https://www.wgea.gov.au/newsroom/finally-equal-pay-day#:~:text=Australian%20women%20in%202021%20have,over%20the%20last%20six%20months>.

^[17] Prime Minister of Australia, ‘Supporting Australian Workers and Business’ (Media release, 22 March 2020) <https://www.pm.gov.au/media/supporting-australian-workers-and-business>.

^[18] D Warren, Report no. 6: The COVID-19 early release of superannuation: Through a family lens – Families in Australia Survey, Australian Government Australian Institute of Family Studies (September 2021) <https://aifs.gov.au/publications/covid-19-early-release-superannuation-through-family-lens>

^[19] Ibid, 2.

^[20] Ibid.

^[21] AIST submission, above note 10, 23.

^[22] Industry Super Australia, above note 11, 11.

^[23] Senate Economics References Committee, above note 5.

^[24] Hetherington and Smith, above note 7, 24–5.

^[25] Industry Super Australia, above note 11, 8.

^[26] AIST submission, above note 10.

^[27] Hetherington and Smith, above note 7, 24.

^[28] Ibid.

^[29] Industry Super Australia, above note 11, 8.

^[30] APRA, Superannuation in Australia: a timeline (2022) <https://www.apra.gov.au/superannuation-australia-a-timeline#:~:text=1992,fund%20on%20their%20employees'%20behalf>

^[31] Ibid.

^[32] A Pennington, Briefing Paper: Women’s Casual Job Surge Widens Gender Pay Gap, The Australia Institute – Centre for Future Work, March 2021, 3 <https://www.futurework.org.au/surge_in_women_s_casual_work_widens_gender_pay_gap>.

^[33] M Callaghan, C Kay and D Ralston, Retirement Review Final Report, 2020, 43 <https://treasury.gov.au/sites/default/files/2021-02/p2020-100554-udcomplete-report.pdf>.

^[34] Australian Taxation Office, Removing the $450 per month threshold for super guarantee eligibility (23 Feb 2022) <https://www.ato.gov.au/General/New-legislation/In-detail/Super/Removing-the-$450-per-month-threshold-for-superannuation-guarantee-eligibility/>.

^[35] Ibid.

^[36] APRA, above note 30.

^[37] Industry Super Funds, Australia’s Superannuation Guarantee Changes <https://www.industrysuper.com/understand-super/super-guarantee-calculator/super-guarantee-changes/>.

^[38] Ibid.

^[39] The Guardian, ‘The great superannuation debate: raise it, freeze it or do away with it altogether’ (24 November 2019) <https://www.theguardian.com/australia-news/2019/nov/24/the-great-superannuation-debate-raise-it-freeze-it-or-do-away-with-it-altogether>.

^[40] Ibid, citing Scott Connolly, ACTU.

^[41] G Cockburn, ‘Industry funds call for federal government to pay superannuation on parental leave payments’, The Canberra Times (18 September 2021) <https://www.canberratimes.com.au/story/7434647/parents-losing-out-on-superannuation-loop-hole/>.

^[42] J Duke, ‘Super is paid on annual leave and sick leave, why not parental leave?’, The Sydney Morning Herald (13 September 2021) <https://www.smh.com.au/politics/federal/super-is-paid-on-annual-leave-and-sick-leave-why-not-parental-leave-20210912-p58qx5.html>.

^[43] Hetherington and Smith, above note 7.