The superannuation system doesn’t work for women. It’s time to do better

24 July 2017

By David Hetherington

You know the feeling. A cold winter’s night and you settle in, cosy on the couch, for some good TV. One of life’s simple pleasures.

But this is a simple pleasure denied to thousands of Australian women, because our retirement income system is failing them. The age pension is barely adequate, especially for renters. And compulsory superannuation, another leg of the much-vaunted three-pillar system, is not working at all for many women.

These women are forced to bed early just to stay warm, as they can’t afford heating. This is just one of many indignities they face. They can’t afford Christmas presents for grandkids. Some can no longer keep their pet, often their only companion. Others turn off the hot water in summer to save on bills.

In a major research collaboration, Per Capita has worked with the Australian Services Union to survey more than 4,500 workers on their retirement prospects and combined these with statistical data to build a comprehensive picture of women’s superannuation. The results are grim.

Women hold less super than men at each stage of their working lives. By the end of their working lives, the median superannuation balance of women is just over half that of men: $80,000 compared with $150,000. Nearly 25% of men have balances over $500,000 while only 4% of women do. Conversely, almost a quarter of women have balances less than $50,000 – this for a nest egg that is expected to last 30 years or more, given rising longevity. Mothers in particular fare poorly. Their super balances are consistently lower than fathers and adults without children.

Women aren’t doing so well either in the third pillar of the system – private savings. Almost half of women surveyed have no private savings outside of super and the family home, and of those who did, the largest group had less than $10,000.

It’s not hard to see why so many women express anxiety about their future prospects in retirement. Trying to stretch a sum of less than $100,000 over 30 years isn’t going to give you much of a cushion over the pension, and that’s despite decades of work in a decent middle-class job.

How has it come to this? Looking for a single cause is futile. There are so many interlocking factors at play, and these compound on each other to exacerbate the problem. First, there’s the underlying gender pay gap – women get paid less for the same work as men, and are more likely to work in casualised jobs, meaning they have fewer hours with less security. Because super contributions are a direct function of pay, this immediate suppresses their super savings.

Women also suffer because they bear the burden of unpaid care. More than 55% of women surveyed had taken time off work to care for children or other relatives, compared with 12% of men. Not only do far more women take periods out of work to care, but they are away from the workforce for far longer when they do. Almost 45% of men are away from work for fewer than three months. By contrast, more than a quarter of women are out of the workforce for more than six years. This has a dramatic effect on women’s ability to contribute to super.

Alongside these causes are a host of others including relationship breakdowns, the regressive tax treatment of super, the high cost and poor availability of childcare and the complexity and frequency of change to the super system itself. It is a wicked problem.

The essence though is that our superannuation system was designed for a world of work which is rapidly disappearing: a male breadwinner working in a full-time, secure job and accumulating retirement savings for himself and his spouse. It was never going to work for independent working women, and if it didn’t fit then, it certainly doesn’t now.

So what’s to be done? Just as there’s no single explanation, there’s no single solution either. Forget the silver bullet. Everyone in the system – government, employers, super funds, unions and individuals – is going to have to play a role.

The critical element is that during their working lives, people don’t fall too far below a decent “accumulation pathway”. This is the savings trajectory towards a super balance at age 65 which will leave them with a decent standard of living until at least 90. We estimate this balance to be about $350,000, giving people an income of $38,500 when combined with the age pension.

To achieve this, we propose that government tops ups superannuation guarantee contributions for workers who fall more than 5% below the accumulation pathway, and pays super on its paid parental leave and carers’ payment schemes. We call on employers and unions to include super contributions on corporate parental and carers’ leave schemes in workplace agreements.

Superannuation funds could offer fee discounts to all account holders below the pathway, and fee-free periods for those on parental or carer leave.

Australia’s superannuation system is a $2tn behemoth that will remain a lynchpin of our retirement income system for decades to come. Yet at a time when the dangers of rising inequality are increasingly recognised, this system is entrenching unequal outcomes for Australian women who have played by the rules, working and saving just as they’d been asked to. It’s time to do better.

This article first appeared in The Guardian on 24 July 2017