How to close the gender gap in retirement incomes
Dear Jane Hume,
Congratulations on being appointed Australia’s first Minister for Women’s Economic Security. It’s a big job and long overdue.
No doubt high on your agenda will be ensuring economic security for women as they approach retirement. As you probably know, women currently retire with one-third less superannuation than men. Their incomes are roughly 10 per cent lower in retirement. And women – particularly if they are single, divorced, or widowed – are much more likely to suffer poverty, housing stress and homelessness in retirement.
Minister, we wish you well in seeking to close this gap, but beware: some policy proposals put to you will actually make the problem worse.
For example, the superannuation lobby will never tire of telling you that the best way to boost women’s retirement incomes is to raise compulsory superannuation contributions. Yet the work of the Grattan Institute, confirmed by your government’s Retirement Income Review, showed that higher super contributions are ultimately funded by lower wages.
That is, higher super contributions would boost women’s retirement incomes, but only at the expense of making them even poorer beforehand. In addition, the review found that the legislated increase in compulsory super, from 9.5 per cent of wages to 12 per cent by 2025, will widen the gender gap in retirement incomes, increasing retirement incomes by 5.7 per cent for the average man, but only 3 per cent for the average women. Abandoning those super increases should be one of your top priorities.
Could we also suggest you ignore calls to expand Australia’s already generous superannuation tax breaks in the name of gender equality. The government’s recent move to allow people with superannuation balances of less than $500,000 to make additional concessional contributions is a cautionary tale.
In theory, this was supposed to help people with broken work histories – who are overwhelmingly women – to make catch-up super contributions. In practice, the change mainly helps men with secure careers and the spare cash to make voluntary contributions, thereby widening the gender gap in retirement savings even further.
Minister, here’s what you should do to improve women’s economic security in retirement.
First, instead of expanding super tax breaks, rein them in. Those tax breaks cost a lot – about $35 billion a year – but actually do little to encourage extra savings.
In fact, by 2040, super tax breaks are expected to cost the government more than the age pension and they overwhelmingly benefit men (who earn more) over women (who earn less).
There’s a strong principled case for paying super contributions on government-funded paid parental leave – although Grattan analysis shows the boost to retirement incomes would only be modest because the extra super contributions would be offset by lower age pension payments.
A high-earning woman who took two stints of leave in her early 30s would get an extra $356 a year in retirement, whereas a low-earning woman (in the bottom fifth of all earners) would get only an extra $164 a year, and an average-earning woman just $73 a year.
Similarly, the $450-a-month threshold for paying compulsory super contributions is redundant in a world of digital payroll systems and should be abolished.
The threshold causes almost twice as many women to miss out on super contributions than men. Abolishing it would increase retirement incomes for affected workers by between $100 and $300 a year.
Further government-funded top-ups to the super accounts of younger, low-income earners would help close the gender gap in super savings, although one quarter of payments would still go to the wealthiest 50 per cent of households and it would come at significant cost to the budget.
If you really want to guarantee women’s economic security in retirement, your priority should be closing holes in the social safety net. Single women who do not own their home are at greatest risk of poverty in retirement and are the fastest growing cohort of homeless Australians.
You should raise the rate of Commonwealth Rent Assistance – a supplement paid to pensioners who don’t own their homes – by at least 40 per cent. That would raise their incomes by at least $1300 a year. And before you ask, yes, we acknowledge that such an increase wouldn’t come cheap. It would cost about $500 million a year if you restricted it just to retirees, or $1.5 billion if you extended it to working-age recipients of rent assistance. But it would be worth it, because it would rescue many Australians, particularly women, from poverty in retirement.
Women save less for retirement because they earn less while working. So ultimately, closing the gender gap in lifetime earnings would be the best way for you and your government to close the gender gap in retirement incomes.
That will require a range of reforms that go well beyond the scope of retirement income policy, starting with cheaper childcare. May we suggest that in the meantime, you should get busy fixing the social safety net.
Good luck minister, the women of Australia are relying on you.