The government’s proposals to double the tax on high super balances to make the $3.3 trillion savings pool more equitable and sustainable, will make little headway in closing the super savings gap between the sexes.
A survey released by Morningstar ahead of International Women’s Day on Wednesday found a significant gap in the account balances between women and men, particularly in the 45-60 years age brackets due to the full effect of child-rearing responsibilities and the compounded lifetime impact of lower paid work.
The survey also found men and women had a “material” difference of more than $44,000 on average between the 55- and 59-year age bracket.
“The results of the survey are unfortunately unsurprising,” Morningstar research director Annika Bradley tells Investment Magazine.
She believes social levers are needed to help narrow the gap such as promoting child rearing as a joint responsibility and making paid parental schemes attractive for both men and women.
“Making childcare affordable and accessible for lower income families by increasing subsidies would help solve the super balance gap,” she says.
The Nordic countries offer world’s best practice in paid parental schemes, she says. “They have done an excellent job to make it acceptable for joint child rearing between parents.”
Women even fall behind men in the less than 25-year-old bracket. Bradley suggests raising education and awareness among women to encourage them to contribute more in super before they take time off to raise families.
Super splitting of spousal concessional super contributions is a good way to help top up the contributions of a non-working spouse, she says, “but it is unclear how well it is utilised and we could do a better job of promoting it”.
The Financial Services Council has also called the government to use the expected $2 billion in tax revue to pay superannuation contributions on the government paid parental leave scheme.
Hot debate
The debate surrounding the merits of the government’s proposals continues unabated.
The changes have found favour with the Actuaries Institute though it highlighted the changes would introduce additional complexity to the administration of the system.
“The Actuaries Institute is supportive of the government’s proposals to make superannuation more equitable and sustainable by dealing with tax concessions for members with high balances,” chair of the Institute’s retirement strategy group Andrew Boal says.
Citing an example that the formula to calculate earnings needs to consider the period earned as some balances may not hit the $3 million threshold until later in the year, Boal, a Deloitte partner in its actuarial consulting practice, says the proposals introduce administrative complexity to the system.
“Earnings taxed should be pro-rated on the principle of fairness,” he says.
Currently tax concessions on superannuation investment earnings equate to around 1.0 per cent of GDP, rising to 1.9 per cent in 40 years’ time. The age pension currently costs around 2.5 per cent of GDP and this is projected to fall to 2.1 per cent over the next 40 years due to the larger superannuation savings pool and higher balances measured against the means tests.
As the Superannuation Guarantee only reached 9 per cent in 2002, in time, more Australians will enjoy the full 9 per cent or higher contribution rate for all of their working lives and will be less reliant on the age pension in retirement according to Boal.
Some industry sources had initially thought the changes sought would impose extra administrative costs to super funds and ultimately impacting members’ fees.
However, Boal believes the complexity of implementing the changes to capture earnings under the proposed method resides with the ATO and “should not impose an additional administrative burden on super funds”.
