Even More Super Women
By Mike SeccombeApril 5, 2012
Women tend to live longer than men — which in the case of superannuation tends to magnify the financial disadvantages they face lifelong.
Melissa Fuller is only too aware of the irony of her position.
Fuller is preparing a submission to the Sex Discrimination Commissioner, setting out the reasons why her firm should not be pinged for discriminating against men with its plan to pay higher superannuation contributions for its female employees.
She is more aware than most of the fact that superannuation looms large among the areas where women are severely disadvantaged. Fuller is an actuary; assessing risk and uncertainty, and measuring demographic influences on financial arrangements, are her business.
And having run the numbers, her firm, Rice Warner, has determined that its female employees should get not just the nine per cent compulsory super its male ones do, but another 1.5 per cent on top.
The reason? Women live longer than men.
With the precision one might expect from someone in her line of work, Fuller quantifies the difference.
"If you look at a male currently aged 67, their life expectancy is currently 17.3 years, whereas a female is 21.1. Of course, that's average, so 50 per cent of people will live longer," she says.
"If you look at it really simply and assume a male and a female with $100,000 in retirement savings … the female is going to have less annual income than the male if she wants the money to last through her life expectancy.
"Even on a simple $100,000 retirement savings balance, she's going to be about $1,000 a month worse off than a male, if she wants to make sure her money lasts.
The numbers are really quite stark."
Longevity, though, is only part of the problem. Women also earn less on average, and work fewer hours while in employment, and spend fewer years in the workforce because they typically take time out from paid work to care for children or elderly parents.
Put these factors together and you have what another woman in the same line of work, Melinda Howes, chief executive officer of the Institute of Actuaries calls "a perfect storm of inequity".
The failings of the superannuation system, she says, result in a lot of people, not only women, but particularly women, "living in penury" out of concern they might outlive their super.
But back to Fuller and her proposal. Her company has been advising the Financial Services Council for about 10 years doing work on the savings gap, she says, "and you can't spout out about these things and not practice what you preach."
In her personal case, her company did.
When she took six months off to have each of her two kids — now six and nine - her maternity leave was paid at full rate.
So two of the standard obstacles to superannuation accumulation - low-paid work and contribution breaks occasioned by time out of the workforce - did not affect her.
But more recently she began thinking about the third issue, longevity. She "threw some ideas round" with the company's CEO, Michael Rice, "then I had one of our analysts run the numbers.
"The modeling indicates you'd need to pay females about 1.5 per cent extra to address just that longevity gap," she says.
And so that's what the company plans to do, assuming, of course, they get the Sex Discrimination Commissioner's approval.
"It's very ironic. But we've been in contact with [sex discrimination commissioner] Elizabeth Broderick and have been directed to make an application for a special exemption.
"At the moment we are preparing our submission. So providing we can justify our decision - which we believe we can with our modeling, we certainly have the expertise to support the case - we hope to begin on July 1.
"For us, it's about supporting our staff, but perhaps others may [take up the idea]."
Fond hope, if the history of addressing equity issues in superannuation, particularly superannuation for women, is any guide.
Fuller acknowledges this.
"Why isn't super paid on compulsory maternity leave? When they introduced paid maternity leave, they should have put super in," she says
"It's one of the main reasons there is that gap. If women take a few years off, there are no contributions going in. Then they can't claim the co-contribution if they're not working. There's all sorts of policy problems that need to be addressed."
In the meantime, we have the federal government's modest model of paid parental leave and the Opposition leader Tony Abbott's more grandiose proposals to pay for nannies and to pay women at their full pre-leave pay rate (up to $150,000) for up to six months.
"Paying super is definitely a more sensible option," she says.
To understand why, we need a few more numbers. Melinda Howes, who, incidentally, also is a strong advocate of paying super through parental leave, supplies some of them.
She cites the most recent official statistics, for the years 2009-2010, which show the average male retiree got a payout of $198,000; for women, the figure was $112,600. This is actually an improvement, because only a few years earlier women did not get even half as much on average as men.
But that does not mean the problem is going away. When you look at the average for people still in the workforce - that is, the figure including those who have recently started accumulating their super as well as those about to retire - men still have vastly more put away, with $71,645 compared with $40,475.
Richard Denniss, of the Australia Institute, provides some other salient numbers.
"The best help would be to pay women as much as men," he says. "One big problem is they earn less than men, about 18 per cent less, for similar work.
"And that inequity during their working life is magnified in retirement."
The major reason for that is the way super is taxed.
Our income is taxed progressively, but everyone pays the same flat rate on their super contributions. (Concessional rates also apply to money in super funds and when money comes out of super funds, which opens up a whole world of tax rorting, but that is a story for another day.)
"So," says Denniss, "if I earn around $35,000 a year, my income tax rate is 15 per cent. So when you take nine per cent of my money and put it into super, I didn't get any tax concessions. But if I earn $400,000 a year, then I face a 48.5 per cent marginal tax rate, and when you take nine per cent of my money off me, you save me more than 30 cents in the dollar tax. So the tax concessions that we provide for superannuation unambiguously favor people on higher incomes.
"Imagine we didn't use tax concessions; imagine we posted cheques to people to help fund their retirement. So we post a cheque for $0 to everyone who earns up to the 15 per cent tax threshold [$35,000], and after that, the more you earn, the bigger the cheque we post you.
"Can you imagine that bill passing through Parliament? The only reason people aren't torn from office over this is that no one understands it," he says.
The result of this regime is in effect a transfer of wealth from the less well off to the more well off.
A paper entitled What Price Dignity? that Denniss co-wrote with David Baker last year quotes the federal Treasury on that: "…the concessions are heavily weighted to individuals on high personal tax rates."
How heavily? The Treasury figures showed 35 per cent of the tax concessions accrued to the top five per cent of income earners.
"And," says Denniss now, "the bottom third of people get nothing. And women are grossly disproportionately represented in there."
Bear in mind that the whole rationale for compulsory super was that it was supposed to ensure that people could provide for themselves in retirement, and did not end up costing the government through aged pensions. And while it has had some impact on pensions, Denniss and Baker wrote, the main purpose of the $27 billion in annual tax concessions for superannuation tax concessions now appears to be "to significantly increase the standard of living of a small portion of retirees".
To quote another long-time critic of the way the super system is set up, a former Treasury official, Howard Pender, "It makes no sense from a public policy point of view."
"In fact, almost all of the tax benefit goes to high-income people. And those amounts are enormous. The tax preference is larger than the pension now," he says.
In other words, the government spends more each year subsidizing superannuation than they do paying age pensions.
"It's absolutely crazy."
The Labor Government has recently made some changes to the super regime, the main one being the phased increase in compulsory super contributions from nine to 12 per cent, that will serve to magnify the existing disparities, he says. It will give the wealthy a tax break on an even larger slice of their income.
As for the government's announced contribution of up to $500 a year for those earning less than $37,000, touted as a measure to level the super playing field, Pender dismisses it as "tokenism".
Nothing has fundamentally changed.
Superannuation will continue overwhelmingly to benefit the fully-employed, high-earning over those who have broken employment and earn less.
It's not just a gender issue, but is disproportionately one.