Published in Inside Story, 21 April 2021

The chasm between men and women in retirement in Australia is impossible to ignore: women currently retire with one-third less superannuation than men, and their retirement incomes are roughly 10 per cent lower. This is rightly seen as a serious policy problem, and is likely to be high on the agenda of the new women’s economic security minister, Jane Hume.

But much of the debate about how to close this gap misses the bigger point. By focusing on retirement income policy — especially superannuation — it focuses on the symptom, not the cause.

The gender gap in retirement can only be fully understood in the context of the gender gap in lifetime earnings. The size of that gap is even more striking: an average woman with children, for example, earns $2 million less over her lifetime than an average man with children. Women are financially vulnerable even before they retire, and tinkering with super rules won’t fix that fundamental problem.

But the government has some tools to close the gap at its source, starting with the biggest economic reform available: cheaper childcare. High out-of-pocket childcare costs are the single biggest barrier to secondary earners, most of whom are women, taking on more work. The barrier is so high that in a household where both parents have a full-time earning capacity of $60,000, the second earner would be working for about $2 per hour on her fourth day in a week, and for free on her fifth day.

Raising the childcare subsidy from 85 per cent to 95 per cent for low-income families, flattening the taper, and removing the annual cap, as Grattan Institute has recommended, would ensure 60 per cent of families would pay less than $20 per day for childcare. We estimate these changes would cost an extra $5 billion a year and deliver a GDP boost of about $11 billion a year — and, crucially, an extra $150,000 of lifetime earnings for the typical mother.

If the government were looking for a smaller step in the right direction, it could consider making childcare free for second and subsequent children, recognising that childcare is especially expensive for families with multiple children in care.

A more equal government-funded paid parental leave scheme would also help. We recommend six weeks reserved for each parent plus twelve weeks to share between them, paid at the current rate of the minimum wage. Overseas experience shows that more equal sharing of care early on establishes habits for life.

By supporting women who would like to do more paid work, these reforms would go a long way to closing the gender gap. KPMG estimates that 39 per cent of the gap is the result of caring responsibilities, including career interruptions, part-time employment and unpaid care.

But the gap exists even for women and men who spend the same amount of time in paid work. This problem is harder for governments to fix, since much of it plays out in the private sector and is a result of prevailing norms. KPMG finds that 39 per cent of the gap can be attributed to explicit or implicit discrimination, since it can’t be explained by either the type or the amount of work.

But another 18 per cent of the gap reflects the difference in pay for male- and female-dominated occupations and the undervaluing of traditionally “female” jobs. This is something the government does have some power to change, because it is either directly or indirectly responsible for a large share of wages in the female-dominated care sectors. Care jobs historically have had very low remuneration despite their importance and complexity. We have recommended a review of pay and conditions in care sectors, including how to finance higher pay.

Other changes to retirement income policies can make a difference downstream. A case exists for paying super contributions on government-funded paid parental leave, for example, as already applies to other forms of remuneration. But a Grattan analysis shows that these payments would yield only modest income gains because they would be offset by lower pension payments after retirement. A high-earning woman who takes two stints of leave in her early thirties would get an extra $356 a year in retirement, a low-earning woman $164 a year, and an average-earning woman just $73 a year.

Another long-overdue change — abolishing the $450-a-month threshold for paying compulsory super, which can’t be justified in a world of electronic payrolls — affects almost twice as many women as men. Abolishing it would increase retirement incomes for affected workers by between $100 and $300 a year — another modest improvement.
Both those reforms would help, but only at the margins. Instead, the real priority when it comes to the gender gap in retirement is closing the holes in the social safety net for older women who are approaching retirement or already retired.

Single women who don’t own their home are at greatest risk of poverty in retirement and are the fastest-growing group of homeless Australians. Raising the rate of Commonwealth Rent Assistance by at least 40 per cent would lift the incomes of those women by at least $1300 a year, or about 5 per cent.

These changes to retirement income policy would tackle some of the most acute symptoms of the retirement gender gap. But the economic gaps between men and women begin much earlier.

The problem has no quick fix. It will require ambitious and often expensive changes. But unless we drastically reduce the lifetime earnings gap, we can expect to be papering over the retirement income gap for many decades to come.