March 8 is International Women’s Day so, girls, it’s a good time to look at whether you’ll have enough super to retire comfortably and what to do if you discover a shortfall between your lifestyle expectations and your retirement nest egg. And men, what a great time to think about how you can help your partner, mum or sister grow their retirement savings.
How big is the super gender gap?
Male super balances are higher than females’ across every working age group. By the time men and women reach 65 years old, women have an average super balance of $112,000 whilst men retire with an average has $190,000.
To put this into perspective, a comfortable lifestyle for a single retiree is expected to cost $40,407 each year, whilst a couple living comfortably would require $55,249 annually. To achieve this, you would need a super balance of about $430,000 if you are single pensioner and $510,000 for a couple (the Age Pension will partly contribute to this).
Keep in mind that single women comprise almost three-quarters of those who receive the Single Age Pension. Whether you’re male or female, a relatively lower super balance implies a less comfortable retirement.
Pauline Vamos, CEO of the Association of Super Funds Australia (ASFA), says the good news is the super gender gap has been slowly shrinking over time. More women are working as mothers, are in better-paying jobs than in the past and are no longer excluded from a system that once provided superannuation to senior (male) employees only.
Why is there a gap?
The gender difference in super is the result of two main factors. On average, women earn 83% of what men earn. Women are less likely to work full-time and often work in relatively low-paying sectors such as retail, hospitality, caring and teaching.
With these facts in mind, one rule regarding compulsory super contributions continues to disadvantage women: employers can’t make super contributions if their employees earn less than $450 per month from a single job. This means women who may hold more than one part-time or casual job but do not earn more than $450 monthly from any one of those jobs can’t have compulsory contributions made to their super balance.
This earnings gap means women make relatively smaller super contributions while they’re in the workforce.
Secondly, women are more likely to take time off work for childrearing or to take on other family responsibilities. This not only interrupts their career but presses ‘pause’ on the compulsory contributions made by an employer. Unfortunately, it’s mistakenly assumed women who are not in paid work can’t make personal contributions to their super.
Catherine Wood, National Chair of Women in Super, says a six-year career break costs women about $77,000 in lost super.
Another driver of the gender gap in super is that many divorcing couples do not take the option of splitting their super entitlements, says Wood.
So how can women grow their super?
For those who haven’t done so already, it is essential to consolidate your super into one fund so that you can cut down on fees and avoid losing track of your super savings.
If you’re currently not in the workforce, you should continue to make small personal contributions each week, as it will be boosted by compound interest.
“Women should be contributing as much as they can, for as long as they can,” says Vamos.
Women earning between $31,920 and $46,920 per year should take advantage of the Federal government’s co-contribution scheme, whereby the government will add up to $500 to your super balance if you make the same contribution.
Vamos also says you should make sure that you’re not paying for life or disability insurance twice – many funds offer such cover and charge you premiums, even if you’ve already taken out insurance with another provider.
If you have a spouse that earns a higher income, find out if they are able to make contributions to your account. Spouse splitting enables your partner to transfer up to 85% of their pre-tax contributions for the financial year into your super account.
The maximum he can split will be between $21,250 and $42,500 depending on their age. As the receiving spouse you must be under 65 and if over 55, not retired. Same-sex and opposite sex de facto couples are also eligible for spouse super splitting.
If you are unemployed or earn less than $13,800 a year, your spouse or de facto can also make super contributions directly into your super fund and claim 18% of the first $3,000 contributed as a tax rebate.
If you’re nearing the pointy end of your time in the workforce, you can still take advantage of the transitional concessional contribution cap. For those over 50 years old, you can contribute up to $50,000 to your super each year while charged a relatively low tax rate of 15%.
Small steps, big change
Use the Retirement Planner at the MoneySmart website to find out how small actions can increase your super balance.
For example: you are currently 30 years old and earn $62,000 annually. By the time you retire, you’ll have an annual income of $22,891, although you aim for an annual income of $41,000 annually - this leaves you with a shortfall of $18,109.
If you take the following steps:
• Make a personal weekly contribution of $30 to your super, even while you’re out of the workforce
• Switch to a low-fee fund (where the management fee is 0.5% of your super balance)
• Move to a ‘growth’ investment option pre-retirement (as opposed to the default ‘balanced’ option)
• Switch to the ‘conservative’ option during post-retirement
• Choose to retire at 65 years old
Taking these actions will not eliminate your ‘gap’ but will drastically shrink it to $4,077. In other words, these actions can boost your annual retirement income to $36,923.
“It can be harder for women to make extra super contributions earlier in their working life. They’re normally saving for a house or paying school fees. It tends to be easier for women to take charge of their super as they get older and have more free time on their hands,” says Wood.
-- By Stephanie Hanna