Retirement not so super for women

Women around the world are faced with a major problem, and that is they are not prepared for retirement, and the countries of they live in are not addressing their needs. Australia can be seen as a harbinger of the issue.

A recent report from Australia by the group Per Capital titled Not so Super, for Women: Superannuation and women’s retirement outcomes, listed many factors contributing to poor outcomes for women: an inadequate age pension, over-representation of women in lower-paid occupations, the gender pay gap, no super at low pay levels, high effective marginal tax rates, carer responsibilities, unpaid domestic work, the complexity of the super system and frequency of changes to it, age discrimination, unaffordable housing, longer lives, poor financial literacy, cost and availability of childcare, relationship breakdowns and casualised work.

In the report, they state that there is no single solution. Instead of a silver bullet, the report proposes a range of recommendations. Central to these recommendations is the idea of an ‘accumulation pathway’, which maps the superannuation balance at any given age that a person should hold in order to expect a basic living standard in retirement based on a combination of superannuation and the age pension.

Not only is the superannuation system is systematically biased against half the population in Australia, I would argue it is so stacked so in every industrial nation. Women are simply not being assisted by super towards a reasonable standard of living in retirement. In Australia, women’s superannuation balances at retirement are 47% lower than men’s. As a result, women are far more likely to experience poverty in retirement in their old age. Superannuation is failing women. In Canada, women contribute less to our Canada Pension Plan and will also experience poverty in retirement.

In almost every nation we can see the reasons and the reasons are obvious. Superannuation/Pensions were designed around a model of employment that is rapidly disappearing. In this model, household income was provided by one breadwinner, usually a man, via a job that was full-time and dependable.

Implicitly, the benefits of superannuation would largely flow to women through their male partners. What’s happened since the mid 70’s is that many more women have entered the workforce to earn and save independently, but the nature of work available to them has been more intermittent and lower paid than that of their male counterparts. This combined with the fact that women still do the overwhelming majority of unpaid housework, caring, and parenting means that the benefits of super/pension plans, which move in direct proportion to pay, have not flowed to female recipients as hoped.

Sadly, and unnecessarily, women’s retirement income not only in Australia but around the world has taken on the features of a wicked problem. It arises thanks to a confluence of diverse circumstances: an inadequate age pension, overrepresentation in lower paid occupations, the gender pay gap, no super/pension at low pay levels, effective marginal tax rates, carer responsibilities, unpaid domestic work, the complexity of the super/pension system and frequency of changes to it, age discrimination, unaffordable housing, longer lives, poor financial literacy, cost/ availability of childcare, relationship breakdowns and casualised work.

One of the main sources of retirement poverty for women is the breakdown of relationships. As the title of the Senate Committee report suggested, “a husband is not a retirement plan”. Women believe that in cases of separation, male partners inevitably end up better off. From the report women talk about this issue:

“…Due to the breakdown of my marriage and having two young children, the opportunity to engage in full-time work was not available to me until my children were old enough to not require full-time care as this was not affordable to me. I did not move into full-time employment until approximately 9 years ago - Now at age 50, I have the grand total of almost $27,000 in my Super. There is no possible way that in the working time I have left I am going to be able to provide funding for my retirement and due to raising two children on a single income, the possibility of owning a home was not an option either as we did not own when we separated. After 11 years of marriage and spending what is now 24 years raising my children, I have not a lot to look forward to in the way of financial security in my older years...”

“…I can’t afford to contribute to my own superannuation, can’t afford to take holidays, nor can I take extra paid leave as I live pay to pay. There are many like me who, after a midlife divorce, accepted extra in the equity of their home so that the children were not disturbed rather than a share of his super. My husband had a for life government pension which, after 20 years of support, I could not make a claim on. I maintained the home and fulltime care of our child while he went offshore and earned big tax-free dollars. He now lives on a luxury yacht and travels regularly while I live from pay to pay. Thanks for listening!…”

Women express great dissatisfaction with a system that is not serving their retirement income needs. Specifically, they feel that:

• Poverty is a realistic expectation in retirement for many women;

• The structure of superannuation puts them at a systematic disadvantage relative to men and the wealthy;

• Women experience excessive dependence on male partners in matters of retirement income, and that relationship breakdowns are a leading cause of retirement poverty; and

• Many women lack a basic understanding of the retirement income system and that more should be done to improve financial literacy.

When we look at the savings for retirement we see that in Australia, the numbers back up the women’s perspective. Over 70% of women in Australia, who have Supers have estimated balances under $150,000 while less than 38% of men do. 23% of men have balances over $500,000 while less than four percent of women hold such balances. Conversely almost a quarter of all women have balances less than $50,000.

In the report, they say that one contributing factor to women’s lower balances is that they tend to spend less time in the workforce than men, and therefore have less opportunity to contribute to superannuation accounts. In part, this is because of their caring responsibilities, either for children or other relatives. Amongst the October 2016 survey respondents, over 55% of women had experienced periods out of the workforce in order to care for family members. By contrast, less than 12% of men had taken time off for similar reasons

Over 70% of women have estimated balances under $150,000 while less than 38% of men do. 23% of men have balances over $500,000 while less than four percent of women hold such balances. Conversely almost a quarter of all women have balances less than $50,000.

One contributing factor to women’s lower balances is that they tend to spend less time in the workforce than men, and therefore have less opportunity to contribute to superannuation accounts. In part, this is because of their caring responsibilities, either for children or other relatives. 

Amongst our October 2016 survey respondents, over 55% of women had experienced periods out of the workforce in order to care for family members. By contrast, less than 12% of men had taken time off for similar reasons.

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. Two-thirds of men who take time out are away from work for less than one year, but only one-fifth of women take so little time away. Almost 45% of men are away from work for fewer than three months. By contrast, over a quarter of women are out of the workforce for more than six years This has a dramatic impact on their ability to put money away for retirement.

The Association of Superannuation Funds of Australia (ASFA) has used a budget standard approach to construct retirement standards. These are in Table 2.(below)

These indicative retirement standards give us a benchmark against which to measure our recommendations regarding adequate superannuation balances.

If we assume that somebody works full time from age 18 to age 65, earns the minimum wage (assumed to have zero real wage growth) for their entire working life, makes Superannuation Guarantee contributions at 9.5% and gets a real return (net of fees and charges) on their superannuation account of 3% then their balance would be $347,000 (in today’s dollars) at age 65. While the assumption of zero real wage growth of the minimum wage is not realistic, this underestimates both simplifies the assumptions and allows for short periods of unemployment or other absence from the workforce.

This balance of $347,000 allows for an annual income (part superannuation and part Age Pension) of about $38,500 up until the age of 90 with the full Age Pension as the fallback after that. These figures assume the person is single – which is important to assume even for couples to ensure against relationship breakdown. We suggest this position, substantially higher than the ASFA modest standard and about $5,000 less than the comfortable standard, as an acceptable target accumulation pathway with the minimum wage for an uninterrupted career providing a modest benchmark

What I like in this report is we can see how much a person should have in their Super/pension when they retire to give them a modest lifestyle. The report goes on to give recommendations to the Federal Government, State Governments, Unions, Employers and Superannuation Plans. To see the full report (which is a pdf file) go here