Chapter 11
Conclusion
Achieving dignity and economic security in retirement
11.1
Many women face an insecure retirement. Men's superannuation balances at
retirement are on average twice as large as women's. In practice this means
that women, particularly single women, are at greater risk of experiencing
poverty, housing stress and homelessness in retirement.
11.2
The size and persistence of the superannuation savings gap is entirely
inconsistent with basic Australian principles of equity and fairness, and
closing the gap is fundamental to ensuring women have dignity and security in
retirement.
Three pillars of Australia's income system
11.3
This problem of economic insecurity for women in retirement is born of
many interacting factors. At its heart, however, is the fact that women and men
experience work very differently. Women are more likely to work in lower paid
roles and lower paid fields, are more likely to work part-time or casually, and
are more likely to take breaks from paid employment to provide unpaid care for
others. As a consequence, over their lifetimes women will earn significantly
less than men.
11.4
Australia's retirement income system does not adequately accommodate
this difference. It structurally favours higher income earners who work full-time,
without breaks, for the entirety of their working life. The women (and men) who
do not fit this pattern of work face a significant handicap when saving for
their retirement.
11.5
Australia's retirement income system is made up of three complementary
elements, or pillars:
-
a publicly-funded, means-tested Age Pension;
-
mandatory employer contributions to private superannuation; and
-
voluntary savings—including voluntary superannuation and other
long-term saving through property, shares and managed funds.[1]
11.6
The various factors that contribute to women's economic security in retirement
highlight the need for a multifaceted approach incorporating both long and
short term measures to improve retirement outcomes for women.
Gender pay gap
11.7
A significant contributor to the gender gap in retirement savings is the
gender pay gap. As noted in chapter 2, the gender pay gap is the difference
between women's and men's average weekly full-time equivalent earnings,
expressed as a percentage of men's earnings. The gender pay gap was 18.8 per
cent in November 2014, and was 17.9 per cent in November 2015. Over the
past 20 years, the gender pay gap has hovered between 15 and 19 per cent.[2]
11.8
The gender pay gap increases to 23.9 per cent for full-time workers when
taking into account total remuneration, which includes superannuation,
overtime, bonus payments and other discretionary pay. Men working full-time
earn around $17,000 more than women each year in their base salary, but this
extends to $27,000 when assessing total remuneration.[3]
11.9
Addressing the gender pay gap is central to improving economic security
for women in retirement as this disparity impedes accumulation of wealth and
superannuation over a lifetime. The gender pay gap exists across industries
where female dominated sectors have historically been lower paid compared to
male dominated industries, as well as within organisations.
11.10
The historical undervaluing of 'women's work' in female dominated
industries and sectors will not be rectified without intervention. Indeed, the
committee contends that a concerted and sustained effort is required to close
the gender pay gap, which has remained largely unchanged over the last two
decades. For example, despite reform, the committee is concerned that the Australian
Services Union's (ASU) equal pay case has been the only successful case under
the Fair Work Act 2009. The ASU's experience in bringing forward its
case exposed the adversarial nature of the process, which is overly lengthy and
resource intensive. The committee considers that the Equal Remuneration Orders
under the Fair Work Act should be reviewed to examine how the system can be
improved to ensure the mechanisms for pursuing equal pay cases are accessible
and not overly burdensome for applicants.
11.11
Many Australian organisations have been proactive in addressing the
gender pay gap, by conducting gender pay audits, developing gender pay strategies
and setting targets for women in leadership roles. The committee commends these
initiatives. Noting, however, that only about 20 per cent of organisation
reported that they had introduced strategies to address the gender pay gap, the
committee is firmly of the view that much more works needs to be done in this
area. The committee stresses the importance of ongoing monitoring and analysis
in order to track progress on addressing the gender pay gap, and the importance
of the ongoing work of the Workplace Gender Equality Agency (WGEA) in providing
tools and incentives to assist organisations. The WGEA is the statutory agency
created in 2012 to promote and improve gender equality in the workplace.
Women's workforce participation
11.12
Women's workforce participation has increased dramatically over the last
40 years, resulting from an increase in the proportion of women of
childbearing age working. In 1978, only 39 per cent of the female population
over 15 years of age was in paid employment (compared to men's employment rate
of 75 per cent), whereas in 2015 the employment rate was 55 per cent (the rate
was 66.7 per cent for men).[4]
Despite these developments, the increase in the number of women in the
workforce as a proportion of the adult population has stagnated over the past
decade, and the proportion of women working full-time is similar to the
proportion in 1978.[5]
Women are also more likely to be employed part-time.
Increasing women's participation
11.13
Increasing women's workforce participation is critical to a healthy,
productive economy as well as to gender equity. Flexible working arrangements
assist parents and carers, who are predominantly women, as well as older
workers to re-enter or remain in the paid workforce. The committee supports the
work of the WGEA in helping employers promote flexible work strategies.
Evidence presented to the committee suggests that further work is necessary to engender
greater awareness among both employers and colleagues about the rights to
access flexible work arrangements, as well as promote management strategies to
enable career progression and development opportunities for part-time workers.
Tax system and incentives for women
to return to full-time work
11.14
Another important consideration is the effect that Australia's tax and
benefit systems, including tax and benefit provisions targeted at children, have
on the incentives for second earners to enter (or re-enter) the workforce. In
particular, the committee is concerned with the extent to which a second earner
may be discouraged from working or working full-time because effectively they may
be taxed at higher marginal tax rates.
11.15
In this regard, the committee considers that further investigation is
necessary to examine the way in which income tax, the Family Tax Benefits and
the cost of child care combine to provide a disincentive for second income
earners to participate in paid work and to identify mechanisms to ameliorate
such disincentives.
Childcare
11.16
The committee recognises that access to affordable and adequate
childcare is a major consideration affecting a woman's decision to participate
in the workforce. The committee contends that access to affordable childcare, now
and in the future, is one of the factors that will contribute to improving
women's economic security in retirement through increased workforce
participation.
11.17
There have been numerous proposals to vary the existing paid parental
leave (PPL) scheme. In the committee's view, any proposed changes should be
assessed in terms of workforce participation and retention. The committee
recognises that there are significant benefits in maintaining 26 weeks paid
parental leave through the combination of government and employer funding.
Older women in the workforce
11.18
A number of submissions highlighted the importance of providing
opportunities for older women to participate in the paid workforce. Such
engagement would offer a number of benefits including the ability for women to
save more for retirement. The committee found, however, that age discrimination
acts as a significant barrier for women wishing to re-enter the workforce. The
committee drew attention to labour market programs such as Restart, which
provides a wage subsidy to businesses that employ workers 50 years or older.[6]
11.19
The committee considers that programs such as Restart should be reviewed
to ensure they are providing the most effective assistance to mature workers.
In addition, the committee sees significant benefit in further investigation of
the way in which means testing of the Age Pension may act as a disincentive to
mature age workforce participation.
Unpaid work
11.20
The committee supports the view that the retirement income system should
better acknowledge and value unpaid care. Carers who take extended breaks from
the workforce, and often return to work part-time, are significantly
disadvantaged in a system that only values paid employment. The committee
considers it is time that the government acknowledges the contribution that
unpaid carers provide to this country and to explore mechanisms that would at
the very least recognise the importance of including superannuation payments in
the various carers' payments and PPL schemes.
Australia's retirement income system
11.21
Australia's retirement income system is made up of a number of interrelated
components, which cannot be viewed in isolation. This system has been subjected
to tinkering, often without due consideration given to how the different
components interconnect. For example, the committee considers that any
objective for superannuation should acknowledge its interdependency with the
other pillars, including the Age Pension.
11.22
In making any changes to this system, the overriding consideration
should be about achieving a system which has dignity in retirement as its
centrepiece. HESTA captured one of the overriding messages coming out of this
inquiry—that the retirement income system more broadly must 'come back to that
basis of dignity in retirement'.[7]
11.23
In the committee's view, the government needs to heed the call for less
tinkering with the various elements of the retirement income system, including
both superannuation and the Age Pension. The committee argues that there should
be greater focus on determining the adequacy of retirement income and
strategies to achieve a minimum level for all Australians. This determination must
go beyond retirement income and also take account of the costs of housing
health and aged care. The committee believes that any changes to the retirement
income system should be based on the principle of 'dignity in retirement, with
the knowledge that it really is the interplay of the pillars and that genuine
desire to have some faith in the government age pension that will deliver
retirement outcomes for women'.[8]
Incentives to contribute to superannuation
11.24
While compulsory superannuation has significantly expanded access to
superannuation for women, the superannuation framework does not easily
accommodate women's experience of work. Future changes to the structure and
operation of the superannuation system should be examined with specific
reference to the impact on women's retirement incomes. For this reason, the
committee believes that the stated objective of the superannuation system
should include a specific reference to women's retirement incomes. Doing so
will underline the importance of closing the gender superannuation gap, and
help ensure that focus on the issue is maintained in the policymaking process
in the years ahead.
11.25
The committee agrees with the view put by many inquiry participants that
superannuation tax concessions should be targeted at those most in need. The
committee acknowledges that gender is only one aspect of the broader issue of
the equity and efficiency of superannuation tax concessions. However, because
women are overrepresented in lower-income, lower-wealth cohorts, the committee
considers that a fairer distribution of superannuation tax concessions, in
which the benefit of those concessions is more evenly shared across the labour
force, would help address the gender retirement savings gap.
11.26
It is the committee's view that the distribution of superannuation tax
concessions should be fair, efficient and effective. Current superannuation
taxation arrangements compound rather than ameliorate the superannuation
savings gap. The committee considers that superannuation tax concessions should
be better targeted to facilitate improved outcomes for women in retirement.
Low Income Superannuation
Contribution
11.27
The committee concurs with the overwhelming view of participants in the
inquiry that the Low Income Superannuation Contribution (LISC) should be
retained beyond June 2017. The LISC is a government superannuation payment of
up to $500 made to the accounts of people earning $37,000 or less per year. The
LISC is not a 'handout' to lower-income earners, but a mechanism to ensure
lower-income earners do not pay more tax on their compulsory superannuation
contributions than they pay on their income. Retaining the LISC is a basic
issue of equity. Conversely, repealing the LISC would be a retrograde step, and
would be particularly damaging for the more than 2 million women who receive a
benefit from it.
11.28
The committee notes that certain reforms to superannuation tax concessions
that are currently being discussed by some commentators might mean the LISC is
no longer required. In particular, suggestions that concessional contributions
might be taxed on the basis of a person's marginal tax rate minus a discount
might remove the need for the LISC. Absent such reforms, the committee
maintains that the retention of the LISC is critical.
Superannuation Guarantee
11.29
The superannuation guarantee (SG) requires employers to contribute a
percentage of an employee's earnings into a superannuation fund which the
employee cannot access until they reach the superannuation preservation age.
The current SG rate stands at 9.5 per cent. The clear message given to the
committee during the inquiry was that the current SG rate is too low. The
increase in the SG rate to 12 per cent is a critically important
reform, and one that will be particularly beneficial in helping women build
adequate savings for retirement. The committee shares the concern of many
inquiry participants that the government's delay in increasing the SG rate will
have a significant detrimental effect on the superannuation balances of many
women.
Other initiatives
11.30
The committee also considered other measures designed to improve
superannuation savings, and:
-
found the exemption for employers to pay the SG if an employee's
monthly wages are less than $450 per month to be outdated, unnecessary and
ultimately detrimental to the interests of casual and part-time workers;
-
reserved judgement on the merits of mandatory superannuation
contributions for self-employed people; and
-
considered there may be merit in introducing joint superannuation
accounts, but determined that this measure was unlikely to produce a
significant reduction in the aggregate gap between men and women's
superannuation balances. It was also aware of possible risks, such as the
potential for joint superannuation accounts to undermine efforts to improve and
secure financial independence of women, both during their working lives and in
retirement.
11.31
In relation to the apparent need for superannuation products to better
address longevity risk for superannuation accounts in retirement phase, the
committee notes that the government is currently undertaking a Review of
Retirement Income Stream Regulations, including:
-
the regulatory barriers restricting the availability of relevant
and appropriate income stream products in the Australian market; and
-
the minimum payment amounts for account-based pensions, to assess
their appropriateness in light of current financial market conditions.[9]
11.32
It is the committee's hope that in undertaking this work, the government
gives appropriate consideration to gender issues and the specific needs of women
in retirement.
Concessional contribution caps on
voluntary superannuation
11.33
The committee examined matters relating to voluntary superannuation
contributions, including how current settings in relation to concessional
contribution caps affect women wishing to make higher voluntary concessional
contributions. At the moment annual caps stand at $30,000 for people aged under
49 years and $35,000 for people aged 49 years or older. The committee did not
receive any clear evidence on how many women would be pushing up against the
concessional contribution caps in any given year. The committee considers that
the number of women who are prevented from building adequate retirement savings
as a result of current concessional contribution caps is likely to be relatively
small. As a consequence, reform in this area is unlikely to significantly
improve outcomes in aggregate for Australian women.
11.34
Nonetheless, the committee considers that there is a case to be made for
allowing women who have had interrupted work patterns and who later on have the
capacity to make additional contributions to do so. The committee notes
concerns that more flexible concessional contribution caps would be
disproportionately utilised by higher income workers. The committee suggests
that any changes in this direction would need to be designed to ensure they do
not simply exacerbate inequities in the current distribution of superannuation
tax concessions.
Super co-contribution scheme
11.35
The committee also assessed the effect of the government's co-contribution
scheme for low-income earners in relation to women's superannuation balances.
11.36
The committee considers that the costs and benefits of proposals for the
government directly boosting the superannuation accounts of younger people,
including Industry Super Australia's Super Seed scheme, would require
additional and careful consideration before adoption. Proposals to build the
superannuation balances of young, low income people at an early stage in their
working lives so that they might better benefit from the power of compound
interest are potentially powerful. However, such a measure may benefit
individuals who later in life may not require support. More broadly, the
committee welcomes the fact that proposals such as Super Seed help to focus
attention on this aspect of superannuation policy, and stimulate valuable
discussion regarding innovative policy approaches.
Employer initiatives—additional
super contributions for female employees
11.37
A number of companies participating in the inquiry outlined schemes they
had implemented to provide higher superannuation payments to their female
employees. For example, some companies, such as Rice Warner, have taken it upon
themselves to augment the SG with additional contributions for their female
employees. While the committee welcomes initiatives by companies to introduce
higher SG rates for female employees, it is wary of making higher SG rates for
women mandatory. In its assessment, it considers there are better, more
targeted ways to narrow the gender retirement savings gap. ANZ provides another
example of a company helping to boost their female employees' superannuation
savings by paying female staff an extra $500 per year in superannuation
contributions.
11.38
The committee joins with other inquiry participants in applauding the
steps taken by individual companies such as ANZ and Rice Warner to address the
gender superannuation gap. While such steps are not by themselves sufficient to
close the gap, they are a useful step in the right direction. The committee
particularly welcomes the fact that these initiatives have served to highlight
the issue of the retirement savings gap and stimulate public discussion on this
critical issue.
11.39
The committee agrees that modest changes to anti-discrimination
legislation would help clarify the legal standing of such schemes, and
encourage further companies to pursue their own schemes. In particular, the
committee shares the concerns expressed by several inquiry participants that
smaller companies might lack the resources to be able to navigate a very
complex and time consuming legal environment, and might be discouraged from
doing so in the absence of appropriate legislative changes.
The Age Pension
11.40
The Age Pension is broadly recognised as a critical means of providing
Australians with economic security in retirement. This importance is reflected
in the fact that it is one of three retirement income pillars in Australia (the
others being compulsory superannuation and private savings). Evidence received
during this inquiry highlighted the importance of the Age Pension in providing
economic security for women in retirement.
11.41
The committee views the Age Pension as an integral component of
Australia's retirement incomes system, and considers an adequate and accessible
Age Pension to be critical in ensuring the economic security of women in
retirement. As many of the experts participating in this inquiry point out, the
Age Pension is not only important for women currently in retirement, but will
remain important for the foreseeable future, even as the superannuation system
matures.
11.42
The committee notes and shares the concerns expressed by various experts
and organisations during this inquiry regarding changes to the Age Pension that
the government has proposed or implemented in recent years. In particular, the
committee is concerned that the proposed move to increase the eligibility age
for the Age Pension will leave many workers, and a disproportionate number of
women, trapped on Newstart Allowance for longer periods. While the government has
abandoned plans to index the Age Pension to CPI, the committee observes that
evidence received in the inquiry highlighted the damage this change would have
had on the incomes of the 70 per cent of Australians of retirement
age who receive a full or part Age Pension payment.
Housing and economic security in retirement
11.43
Home ownership is a significant component of the third retirement
pillar—voluntary private savings. The adequacy of retirement income and
economic security in retirement are highly dependent on home ownership and
access to affordable housing. The committee has noted in its Out of Reach?:
The Australian housing affordability challenge report that affordable and
secure housing brings health and wellbeing advantages for renters especially as
they grow older. People who retire without owning a home, particularly single
women, are at greater risk of living in poverty and experiencing housing
stress.
11.44
The supply of social housing is an essential part of the housing stock,
which provides low income people and homeless people or people at risk of
homelessness with a pathway to secure long term accommodation. While social
housing provides a necessary safety net for older Australians, there is a serious
shortage of this type of housing.
11.45
The committee supports the development of innovative government
initiatives to encourage private sector development of affordable housing
options. The committee considers that in the absence of any credible
alternative scheme the Australian Government should consider continuing with
the National Rental Affordability Scheme (NRAS). The scheme is designed to
stimulate and add to the supply of affordable housing by offering annual
financial incentives to private investors and community organisations to build
and rent homes to low- and moderate-income households at a rate at least 20 per
cent below market rates.
11.46
As the supply of social or community housing is limited, increasing
numbers of older people are relying on private rental accommodation. The
committee is concerned that the retirement income system does not adequately
address the rising housing costs for older people renting in retirement,
particularly single women, who are at greater risk of living in poverty. The
evidence received during this inquiry supports the findings of the committee's
Out of Reach?: The Australian housing affordability challenge report that
the adequacy of the Commonwealth Rental Assistance (CRA) scheme intended to
meet housing costs for low-income renters needs to be addressed. A number of
submissions recommended that CRA be reviewed to ensure it adequately meets
rising housing costs in Australia. The committee considers that increasing CRA
is one of the most significant measures that could be taken to assist
immediately those retirees under the greatest financial stress.
Accessing equity in the home
11.47
Submissions raised the possibility of developing home equity release
schemes as many older people who own their own home may be income poor if their
cash income is not enough to meet their daily needs. While home owning retirees
may have the benefit of not paying rent and be considered asset rich, the
family home is an illiquid asset.
11.48
The committee considers that there may be merit in further considering
the development of products to unlock equity in the home for those who find
themselves asset rich but cash poor in retirement. However, the committee is of
the view that any such proposals should have regard to the evidence of women's
greater reliance than men on the home as their primary asset in retirement.
Further, the committee is concerned that any proposals to enable access to home
equity for retirement income should not be tied to a move to include the
principal residence in the assets test for the Age Pension.
Financial literacy
11.49
Many submissions argued that improving financial literacy more broadly
and targeting programs to address the particular circumstances women may find
themselves in across their lifetime, could improve outcomes for women in
retirement. A range of inquiry participants suggested that while Australian
women typically had fairly good levels of financial literacy, they would
benefit from targeted information to better understand their needs in
retirement.
11.50
The committee believes that financial literacy tools and programs could
have an important role in encouraging women, particularly young women, to
engage with their superannuation and think carefully about planning for their
retirement. The committee acknowledges that government and industry have
already developed a range of targeted programs and tools.
Summary
11.51
The causes of gender inequality in retirement are complex, and a
solution is correspondingly complex. While there are no simple answers, the
committee is of the view that Australia needs to redouble its efforts to
achieve equality at work—paying women equally, offering access to career
development and leadership opportunities, and accommodating rather than
penalising those who care for others. Government, business, and individuals
have a role to play in achieving women's full participation in our workplaces.
11.52
The committee has made 19 recommendations intended to help women
increase their participation in the workforce and improve their superannuation
savings as a means of achieving dignity and economic security in retirement. It
looks at promoting measures that will assist women in retirement to live
comfortably and securely as they age.
Senator Chris
Ketter Senator Jenny
McAllister
Chair Subcommittee
Chair
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