Paid parental leave is a good start, but more action is needed

According to the Australian Taxation Office, the superannuation gender gap as of June 2021 was sitting at 20.5 per cent. This year’s International Women’s Day theme, “Count her in. Invest in women. Accelerate Progress,” encourages us to take action, to ensure we accelerate progress, so future generations of women can truly celebrate gender equality. What can the advice and wealth management community, politicians, women and their partners do, to count women in and equalise superannuation balances?

Many past reviews of our superannuation system have highlighted the system isn’t necessarily failing women; rather the working-life earnings gap between men and women is what drives inequity in superannuation balances at retirement. On average, compared with men, women have higher representation in lower-paying industries, are more likely to work part-time, take more career breaks, and perform most of the unpaid caring and domestic duties. However, more women are entering and re-entering the workforce and working full time. This, combined with the removal of the $450 per month qualifying rule to receive the superannuation guarantee and its increasing rate, may result in some narrowing of the superannuation gender gap. But more action is needed to get closer to parity.

A recent legislative change highlights the government’s intention in tackling the superannuation gender gap. Given women perform the majority of the unpaid caring and domestic duties, the passage of legislation that expands the duration of paid parental leave is a welcome action. The change will see Parental Leave Pay increase by two additional weeks each year from 1 July 2024 until it reaches 26 weeks from 1 July 2026. The eligibility criteria remain unchanged – recipients will need to meet the income test; they’ll need to be off work once they become the primary carer; and remain off work until the end of the payment period. To even up domestic duties, either parent can claim the government-funded Parental Leave as the maximum payment is available for a family unit. These taxable payments are paid at the rate of the national minimum wage. While this measure encourages domestic care to be shared between couples, it is likely to have a marginal impact on the superannuation gender gap.

Although having a child can increase household expenses considerably and reduce the total household income, couples who are able to make contributions to superannuation during their Paid Parental Leave period should be encouraged to do so. A recent government announcement will give a welcome boost to parents’ super balances. The government has said it intends to pay superannuation guarantee on Paid Parental Leave. Details, such as on costings, will be announced in the upcoming May budget. Should this be implemented, it means $2,756 could be added to superannuation balances, according to a recent article in The Guardian. When this amount is compounded over someone’s working life, this measure is a significant step forward towards superannuation gender parity.

Although not specifically a policy measure to address the gender pay gap, the re-engineered stage 3 tax cuts (commencing on 1 July 2024), according to the government, will see Australian women taxpayers, on average, receive a tax cut of $1,649 from 1 July. Given the cost-of-living crisis is hitting women harder, an increased pay packet will be welcomed by many Australian households. However, if even a proportion of these tax cuts is put towards closing the superannuation gap, perhaps fewer women will reach retirement with financial insecurity and fear of living in poverty. With research highlighting there is a persistent financial literacy gender gap, with women having lower levels of financial literacy compared to men, the financial services industry has an important role to play, to count women in, to invest in women, and to close the superannuation gender gap.

Advisers are in a special position to make a significant impact in this regard. In a recent discussion with Christine Lusher, financial adviser and founder of Lush Wealth, Lusher highlighted the role advisers can play in helping to build women’s financial literacy, by making complex topics more accessible; for instance, by using less financial jargon and more plain English. By doing this, women can feel more confident to move forward with investing. And investing is a great way for women to help close the superannuation gap.

They say actions speak louder than words. This feels particularly true when it comes to closing the working-life earnings gap between men and women, as well as the superannuation gender gap which are continuing to drive inequity in retirement balances. It’s essential we ask ourselves, how can we count women in? Our actions need to speak louder than our words because, according to the United Nations, when women are given equal opportunities to earn, learn and lead, entire communities thrive.

Top advice topics among female retirees

BT answers around 8,000 queries each year from advisers through its technical hotline and emails. Some popular advice themes being raised by advisers with female clients are:

1. Overcoming the rising cost of living – Around 80 per cent of older Australians are feeling the impact of higher living costs, with health costs, energy prices and groceries being the top three worries for them. Women retire with lower super balances; and women’s lower workforce participation and lower pay per hour compounded over a lifetime leaves older women more vulnerable to financial insecurity, according to the government’s 2023–24 Women’s Budget statement. To address rising costs on the expenses side, retirees are seeking advice on how they can manage their household budget, and as part of this, what discounts and concessions they may be eligible for.
2. How to manage income needs – Retirees can spend decades in retirement so they need to manage not just expenses, but the income side of things. In 2019–20, a 65-year-old had a life expectancy of 85.3 years for a male and 88 years for a female. The average age of retirement in Australia is 56.3 years. While interest rates are high, savings accounts are paying better rates; however, the interest earned may not be enough to offset the higher costs of living. Growth investments like property, shares, and alternative investments carry a higher risk, but for taking on that risk, investors can potentially earn a higher rate of return.
3. Fear of outliving savings – Many retirees seek to manage what they perceive as longevity risk by only drawing down the minimum pension payment from their income streams and live more frugally than they actually need to. The recent Treasury discussion paper on the retirement phase of super talks to this point and highlights that drawing just the minimum pension can arbitrarily reduce retirees’ income and impacts on their living standards. It is important to remember that minimum pension draw down rates are generic settings that don’t consider the specifics of a person’s situation.

Sarah Conte, is senior manager, advice technical and regulatory, BT