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Wages gap remains bar to women’s wealth accumulation

Nicki Bourlioufas  |  21 Dec 2020Text size  Decrease  Increase  |  
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Women still lag men when it comes to superannuation and wage levels, according to wealth advisers, who suggest women take control of their finances sooner to help close the savings gap.

The median superannuation balance remains much lower for women than men, according to the most recent data from the Australian Bureau of Statistics. In 2017–18, the median superannuation balance at, or approaching, preservation age (55-64 years) was $118,556 for women and $183,000 for men.

According to a new report from the federal government, while average account balances for women have grown over the past 14 years and caught up as a proportion of average male account balances across all ages (81 per cent in 2018 compared to 62 per cent in 2004), a substantial gap remains and will not likely close.

“The gap in retirement savings and retirement incomes for women is the accumulated result of the economic disadvantages faced by women in their working life—lower wages than men, more career breaks for child‑rearing and caring for others, and more part‑time work,” the Retirement Income Review Final Report said.

On the most recent ABS data, the ratio of female to male average full-time ordinary weekly earnings in May 2020 was 0.86, barely changed from 0.83 ten years ago—women still on average earn 14 per cent less than men, compared to 17 per cent a decade ago.

Research suggests having children is associated with a reduction in earnings of up to 80 per cent on average over the following 15 years after the birth of a child, compared to women with no children, the report found. The financial impacts from divorce and relationship breakdowns are also worse for women.

“In future, the gap between the superannuation balances of men and women will narrow substantially; however, it will not close while a gap remains in earnings and workforce participation,” the report found.

Closing the gap

Glen McCrea, chief policy officer and deputy CEO, Association of Superannuation Funds of Australia is advocating for changes to address the structural issues that leave women worse off in retirement.

McCrea’s proposals include abolishing the $450-a-month threshold, which precludes anyone earning less than that from accumulating superannuation. However, this “would have a small effect on retirement income,” according to the Retirement Income Review.

“Analysis undertaken by the Treasury estimates that around 240,000 women and 160,000 men are affected by the $450-a-month threshold. Further, the Treasury has estimated that around 40 per cent of those affected are aged under 25 and two-thirds aged under 35,” says McCrea.

Nor would a planned increase in the superannuation guarantee help narrow the gap either. The SG is 9.5 per cent through to 2020‑21, increasing by half a percentage point every financial year until reaching 12 per cent in July 2025.  “Increasing the SG rate would not reduce the gender superannuation balance gap and would benefit the retirement incomes of men more than women,” the report found.

ASFA’s McCrea says one of the most important strategies for women is making additional voluntary contributions to superannuation where possible.

“For example, salary sacrifice (pre-tax) contributions can be tax advantageous and [women can] enjoy the benefits of compounding investment returns over time,” he says.

“Being in the right investment strategy with appropriate asset allocation is also important as this can accelerate returns, particularly for younger women with a long-term investment horizon. Most funds offer intra-fund advice (at no additional cost) about increasing contributions and choosing the right investment strategy, so that is a great place to start.”

a picture of a coffee cup and a diary and pen

Being in the right investment strategy with appropriate asset allocation is also important as this can accelerate returns, particularly for younger women with a long-term investment horizon, says ASFA

According to Felicity Thomas, senior private wealth adviser with Shaw & Partners, planning ahead is important, particularly if a woman knows she will leave the workforce at some point.

“If you know you are going to be taking some significant time off work, you could start salary sacrificing up to the $25,000 concessional contribution cap early. That way you don’t fall behind when you are not receiving any super contributions. You also get the added bonus of the salary sacrificing reducing your taxable income,” she says.

Superannuation splitting is another option. “Each year you can split up to 85 per cent of your spouse’s concessional super contributions into your superannuation. This is a great strategy if you have taken time off work due to pregnancy or if your partner has a significantly higher income than you,” she says.

“If you are a low- or middle-income earner (or on unpaid maternity leave/ unemployed) and make after-tax contributions to your superfund, the government may also make a contribution up to a maximum of $500. There are a few eligibility requirements so it’s best to check with a financial adviser if you are eligible.”

Thomas also recommends carrying forward unused concessional superannuation caps. “If your superannuation balance is under $500,000 you can use unused contribution caps from 2018-19 financial year on a rolling five-year basis. What this means is if you haven’t used the full amount of your $25,000 concessional contribution cap in 2018-19 then you can carry forward those unused amounts and take advantage of it up to five years later. It would be smart to use it when you know you have a higher taxable income to also help reduce your taxable income.”

Drew Meredith, director and financial planner at Wattle Partners, adds that from 1 July 2021, those caps will increase to $27,500 for concessional and $110,000 for non-concessional contributions per person per year.

Meredith also recommends women pay off any debt. “If you have debt, focus on paying it off. If you don’t, start investing but in a diversified way. Your retirement income doesn’t just need to be held in super, which is basically inaccessible. So even if you can’t contribute to your super fund, still put it to work. Examples are buying some exchange-traded funds, a diversified managed fund, look overseas or if you have time, start reading and listening to investment podcasts,” says Meredith.

“Don’t be afraid to take control and ask questions. The investment management industry in Australia, as highlighted in a recent Morningstar report, lacks transparency, but the information is there if you are willing to ask.”

Wealth hits record high, women lead on property ownership

There is some very good news when it comes to women and wealth. Most Australians hold the bulk of their wealth in property. And women are more likely to own their own home, with or without a mortgage: 58.6 per cent of women cross all age groups owned their home compared with 55.5 per cent of men in 2017-18.

Wattle Partner’s Meredith says while property is a popular investment strategy, it is a very long-term investment. “It has the ‘benefit’ of being able to leverage five times your capital invested, that is, you can purchase a property with a deposit of 20 per cent, borrowing the other 80 per cent, which can speed up your returns, but also losses. It is also difficult to change course on property investments as they are not easily sold,” he says.

a picture of a house key in a door

Women are more likely to own their own home, with or without a mortgage: 58.6 per cent of women cross all age groups owned their home compared with 55.5 per cent of men in 2017-18

But property holdings helped boost total household wealth 1.7 per cent in the September quarter 2020 to a record high of $11.35 trillion, according to ABS figures. Increases in residential property (1.2 per cent), deposits (5.4 per cent), and superannuation balances (1.1 per cent) were the main contributors to the growth in household wealth.

Average household wealth increased 1.6 per cent (up $6,850) to $441,649 per person. Most wealth, or around 65 per cent, was made up of $7.35 trillion of property assets. Financial assets accounted for the rest, including superannuation ($3.17 trillion), cash, term deposits and shares ($1.29 trillion) and shares ($1.06 trillion).

 

is a Morningstar contributor.

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