Tuesday, August 18, 2015

By design. Why super system hurts women

Women put away only half as much super as men, and suddenly we're concerned.

The Senate is holding an inquiry. The finance industry is talking stop-gap solutions. The ANZ wants to give its female staff a $500-a-year top-up. Rice Warner wants to pay an extra 2 per cent into their accounts. Westpac is paying their super while they are on maternity leave. Their umbrella body, the Financial Services Council, wants the law changed so that women can top up their accounts later in life, when presumably they've got income to spare. Other solutions are dafter.

The ANZ is offering free financial advice to female customers with less than $50,000 in super. The Association of Superannuation Funds wants women to "take an hour" to check their accounts each International Women's Day. Newspaper columns suggest skipping coffee, getting spouses to pay into super or working for a company that values women.

Oh, and lifting compulsory contributions from 9.5 to 12 per cent. The industry loves that one.

Every one of these suggestions misses the point. Low income earners get less super than high income earners by design. It's the way the system is set up...

Women are usually low income earners. It's a fact. On average women employed full-time get 20 per cent less than men employed full-time. And because so many are employed part-time, their total wages are on average 33 per cent less. And that's when they are working. Because so many have interrupted working lives their life-time incomes are lower still.

It means lower contributions. Our super system gives the most to those who contribute the most, and then accentuates the difference by giving the greatest tax concessions to those who earn the most. It supports most who need it least. And we are meant to be surprised that it isn't aimed at women.

According to Roy Morgan research, typically, an Australian woman holds just $35,200 in super while a man holds $62,900. A retired woman holds $129,100 in super; a retired man has $192,600.

And because women usually live longer than men, the woman's money has to last longer. It's often said that women are able to rely on their men to get them through retirement. It's one of the tips for how to cope. But many retire without partners. Marriages don't last.

As the Human Rights Commission says: "It is inequitable and impractical that a woman's expectations of financial security in retirement should fluctuate according to her relationship status".

And it's dangerous. The commission says depending on male income "makes the significant number of women in violent or abusive relationships financially vulnerable, particularly as they reach retirement age and the possibility of acquiring an independent income diminishes".

If we were going to devise a system that actually supported those who needed it the most, we would devise nothing like the one we have at the moment.

In large part that's because our system wasn't designed; it grew. In presenting the report of his financial system inquiry late last year David Murray pleaded with the government to define a purpose for super. Is it to help middle-income Australians save a little bit more to supplement the pension? Is it to provide a tax break for the investments of high earners? Is it to replace the pension for all but the lowest of earners?

The system began as a short-term fix for a short-term problem. Retirement incomes scarcely entered into it. Ralph Willis, one of Labor's Treasurers in the Hawke/Keating era, remembers that the building unions had just negotiated a massive pay increase outside of the so-called Accord, under which centralised wage rises were handed out. If the increase had spread to workers within the Accord it would have reignited double-digit inflation.

"It was an open invitation to everyone else to breach the Accord," he told ABC radio years after retirement. "The way of resolving it was to turn it into superannuation."

Workers were given super in lieu of wage rises. Because they were unable to spend it until they retired, it didn't stoke inflation. Before long compulsory super accounted for 4 per cent of each wage, and then 9 per cent. Had the Rudd/Gillard Labor government stayed in office it would have climbed to 12 per cent (and there was talk of 15 per cent). All the while without an examination of what it was actually for.

It isn't supporting the retirements of those most in need. They are forced on the pension. It is helping middle-income Australians put away a bit more for retirement, but at the cost of leaving them with less than they could have in the middle of their lives. And it's serving as a tax dodge for high-wealth retirees who pay nothing on the earnings of their funds or on their payouts for the rest of their lives.

The best way to use super to help low income women would be to abolish compulsion, abolish the tax breaks, and let them access their income when they need it. The extra tax revenue could dramatically boost the pension, and better means testing could ensure the very well off still didn't get it.

It would help women because it would replace the system that hurts them rather than merely ameliorate its worst effects. The worst thing we could do would be to boost their compulsory super contributions, as the industry wants. It would further depress their incomes while leaving the differential on retirement in place.

In The Age and Sydney Morning Herald