Closing the retirement savings gap
Closing the retirement savings gap
Superannuation payments on parental leave and higher compulsory contributions are two of the things that women should be looking for from employers to close the gender gap in retirement savings.
In 2012, the Diversity Council of Australia (DCA) found that only 10 per cent of its 500 member organisations were paying superannuation during unpaid parental leave periods.
Lisa Annese, chief executive of the DCA, says in the absence of fresh data, anecdotal evidence suggests that figure is much higher today.
“Every year more organisations recognise that if they want to create financial parity they need to address structural deficits and paying super on parental leave is one of those.”
Recent data from the Australian Bureau of Statistics (ABS) shows the average woman’s lifetime super balance is $101,700, which is 66 per cent of the average man’s at $153,000.
The gap is significant in light of Roy Morgan research showing there are less women topping up their super than nearly a decade ago.
That said, there are five things that women should look for from their employers, and which may assist in pay negotiations, to help make a difference on the retirement savings gap.
- Does the employer provide paid parental leave?
- How generous in length and amount is paid parental leave?
- Does it pay super on parental leave, and does this apply to paid and unpaid leave?
- Does the company pay more than the compulsory Super Guarantee (SG), which is 9.5 per cent currently?
- Is there an opportunity to link performance bonuses with additional employer super contributions?
The gap – caused by career breaks and changing career patterns as women more often leave work to care for children – is one of the key reasons why the City of Sydney Council recently announced it would extend its employee super benefits on parental leave from 18 weeks to 52 weeks.
Financial giants like HSBC, the big four banks and a number of property and financial services firms are already paying super to staff on parental leave for up to two years. For women – and soon to-be dads – working for these companies, the benefits are significant.
Based on the average weekly wage for women of $1434 (as measured by the ABS) and super payments at the compulsory SG rate of 9.5 per cent, $136 a week, paid over a two-year (104-week) period of parental leave, equates to an extra $14,167.
Less the 15 per cent contributions tax, the net benefit is $12,042 in super over two years.
With the power of compound interest in super, and assuming growth at 6.7 per cent net of investment fees, that could make a $22,332 difference to a super balance over 10 years. Further, if we use the same weekly figures and increase the SG rate to 10.5 per cent over the two-year period, that equates to an extra $24,684.
Dianne Charman, financial adviser at AMP Financial Planning. believes where companies have quality people they want to return to work, “these added benefits are the things that they should be looking at”.
But not every employer can afford to offer these additional incentives to staff.
“My concern is that it’s small employers who are genuinely hit hardest at times of maternity leave,” says Dominique Bergel-Grant, financial planner at Leapfrog LIFE. She adds that women might need to weigh up whether they go for financial benefit in big companies over the job flexibility of a small employer.
Under federal legislation, employers are not required to make super contributions for employees on paid parental leave.
Despite all the publicity around the gender gap in super, research provided by Roy Morgan shows that only 14.7 per cent of women contributed more than the compulsory amount to their super savings in 2018, down from 18.4 per cent in 2009.
The drop is more significant among men, as only 15.5 per cent topped up their super in 2018 compared with 22.9 per cent nearly a decade ago.
The decline is likely to have been affected by changes to the contributions caps, restrained wages growth and rising costs of living.
The impact of accumulated super returns over the past decade, record full-time employment growth among women and increased awareness around the gender imbalance is closing the super gap, albeit very slowly.
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