What’s the best way to close the gender gap in retirement incomes

Parts of this post have been reported in Money Management.  Click here to see the Money Management Article or on the Money Management logo below.

Brendan Coates of the Grattan Institute presented a paper to the Australian Gender Economics Workshop 2018 in Perth on 9 February 2018.  The paper was entitled “What’s the best way to close the gender gap in retirement incomes?”

In this paper, the Grattan Institute put forward a proposal that one of the best ways to close the gender gap in retirement incomes, is by “better targeting superannuation tax breaks”.  The changes proposed by the Grattan Institute include:

• Reducing the maximum annual contributions from pre-tax income to $11,000 a year (a drop of 56 percent of the current limit of $25,000).
• Limiting lifetime contributions from post-tax income to $250,000, or place an annual cap on post-tax contributions of $50,000 a year (a drop of 50 per cent on the current annual limit of $100,000, assuming your superannuation balance is below $1.6 million).

The Grattan Institute’s theory behind this, is that because men are by far the greater beneficiaries of the tax breaks from the current higher contribution levels, it will result in men having lower superannuation balances at retirement.

Now this technically does close the gender gap in retirement incomes, as women would have about the same superannuation as they do have now, but men would have less.

But does this help women’s retirement incomes in the long run?

In my view it doesn’t!

What’s hers is hers and what’s mine is hers

Let’s start with married women.  The reality is that working with the simple wedded bliss concepts of “happy wife, happy life” and “what’s hers is hers and what’s mine is hers”, a married women would have all of her own superannuation and a chunk of her husband’s.

Let’s use my own family as an example.

Over our 30 plus years of married life, my wife has worked on and off with time taken to raise our kids and do other things.  But, irrespective of who was earning what, we have always shared our income.

But this situation has led to my wife having a much lower superannuation balance than myself.  This is a typical outcome in Australia.  As according to the Grattan Institute in 2015-16, a man aged 60-to-64 would have an average superannuation savings of $270,710, and a woman of the same age would have $157,050.

Now can you imagine when we are eligible to draw down on our super that my wife will suddenly change and only live of her portion?  No way!

We will continue to share whilst we are both alive.   So if we were the average couple as noted by the Grattan Institute, my wife’s effective super would not be $157,050, but $213,880.  Being half of the combined household superannuation balance of $427,750.

Now let’s see what happens if after adopting the Grattan Institute’s proposal, my superannuation drops by 25 percent from $270,710 to $203,032 and my wife’s superannuation does not change.

There is now a reported gender superannuation gap of $45,982 ($203,032 – $157,050) in our family.  This is much less than the current reported gender superannuation gap of $113,660 ($270,710 – $157,050).  So the Grattan Institute have achieved their stated aim of closing the gender superannuation gap.

But as our household balance superannuation balance is now only $360,082 ($203,032 + $157,050), my wife’s 50 percent share is now only $180,041.  My wife now has access to $33,839 less superannuation, a 16 percent drop.

And this will be the same for all married women who share their income and expenses with their male partner.  And this is why the Grattan Institute’s proposal will actually lower the retirement income of married women.

Let’s look at single women or women in a same sex marriage.

As this proposal mainly targets men, it would not significantly change the superannuation balances of single women and women in same sex marriages.  So they are really no better off.  But as men have less, the gender superannuation gap is closed.

But another part of the Grattan Institute’s proposal is to tax earnings in retirement at 15 percent when this is currently nil.  And this extra tax will actually result in all women, whether married or single, having lower retirement incomes.

And all of this is why I believe that the latest proposals contained in Grattan Institute’s paper “What’s the best way to close the gender gap in retirement incomes?” will actually hurt more women than it helps.

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Do you and your family a favour and start taking steps so you can improve the health of Your Wealth and get off the treadmill of working till you drop.

Wayne Wanders

The Wealth Navigator

wayne@thewealthnavigator.com.au

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