Super funds claim the typical 30-year-old woman just scored $85,000 throughout a lifetime due to budget changes to retirement income rules.
Here’s how: starting with deciding to stick to the plan to increase compulsory super contributions by employers to 12 percent and forcing bosses to pay super even if you’re working part-time.
As revealed by news.com.au, the Treasurer Josh Frydenberg has scrapped the $450 a month threshold to pay compulsory super in the 2021 federal budget. It’s the threshold that causes almost twice as many women as men to miss out on a super contribution when working in insecure, part-time jobs.
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It’s estimated 300,000 individuals will secure super payments under the changes when they miss out under the current rules that allow bosses not to pay super for some part-time staff. Abolishing the requirement that workers earn $450 a month with a single employer would also not cost employers much – adding only a couple of hundred dollars on average to their costs for each employee.
The cost to taxpayers is modest. Budget Paper No 2 will cost just $4.8 million in 2022-23, rising to $13.8 million in 2024. But the plan won’t come into force until the first financial year after Parliament gives the enabling legislation the tick. The government expects that will occur before July, 2022.
Industry Super said last night that the federal budget had increased women’s savings by billions by sticking with the legislated super increase and mandating that super is paid to all part-time workers.
Paid parental leave
However, there’s still no super with the government’s paid parental leave scheme. “After employers and workers pulled the economy through a really tough year, it’s good that Australians can bank on super going to 12 per cent but a real let down that the government didn’t take the opportunity to close the gender gap by getting super paid on paid parental leave,’’ Industry Super Australia Chief Executive Bernie Dean said.
“The best way to improve women’s economic security is to stop talking about it as a problem and get rid of outdated policies by paying super on every dollar they earn and mandating that it be paid on payday.” “The government is sending the message to mums that it is ok for their savings to suffer when they take time out of the paid workforce to raise children.”
Australia’s Paid Parental Leave Scheme currently ensures that all eligible working parents – overwhelmingly mothers – receive up to 18 weeks of pay at the national minimum wage rate. However, the PPL scheme now does not attract the superannuation guarantee, which means it’s also not compulsory for any employer to pay superannuation while a new parent is on maternity leave.
Parental Leave Pay is currently $150.78 per day before tax or $753 a week. If the Morrison Government had moved to extend the super guarantee to women under the government’s PPL scheme it would have topped up eligible mums super by around $1400 for each child.
How does the super threshold work?
It’s the threshold that causes almost twice as many women as men to miss out on a super contribution when working in insecure, part-time jobs. Abolishing the requirement that workers earn $450 a month with a single employer would also not cost employers much – adding only a couple of hundred dollars on average to their costs for each employee.
But over time it’s hoped to help bridge the retirement incomes gap between women and men because women are more likely to miss out under the current rules. In an interview with news.com.au, Treasurer Josh Frydenberg wouldn’t comment on the change. Still, he did confirm women’s super nest eggs and economic security will be a significant focus in Tuesday’s budget.
“We’ve already got catch-up contributions. That does help women who are out of the workforce,’’ he said. “But we are thinking about retirement incomes for this budget and particularly the impact on women. “In the budget, there’s a focus on economic security, and obviously childcare has been that signature item, and women’s safety and women’s health as well.”
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Budget measures aimed to help women.
Mr. Frydenberg said other measures in the budget, including the policy announced over the weekend to help single mothers and parents own their own home with a deposit as low as 2 percent was also part of the measures designed to improve women’s retirement.
“Homeownership for women, for families, is, of course, a priority for us,’’ the Treasurer said. “And what the retirement income review found was that families and individuals that own their own home are going to have a much more secure time.”
The Grattan Institute’s Household Finances program director Brendan Coates said abolishing the $450 threshold was a no-brainer. “It’s redundant in a world of digital payroll systems. Originally it was designed to help small businesses, so they didn’t face extra paperwork,’’ he told news.com.au. “But there’s no reason anymore not to do that. They don’t miss out on much. We are talking about $100 to $300 a year.”
But the government appears to have junked plans to cover super payments linked to the government’s 18-week paid maternity scheme. Australia’s Paid Parental Leave Scheme currently ensures that all eligible working parents – overwhelmingly mothers – receive up to 18 weeks of pay at the rnational minimum wage rate
However, the PPL scheme currently does not attract the superannuation guarantee, which means it’s also not compulsory for any employer to pay superannuation while a new parent is on maternity leave. Parental Leave Pay is currently $150.78 per day before tax or $753 a week.
It’s payable for up to 90 days or 18 weeks, which means it’s worth around $13,500. From July 1, the super guarantee also rises to 10 percent. If the Morrison Government had moved to extend the excellent contract to women under the government’s PPL scheme it would have topped up eligible mums super by around $1400 for each child.
Superannuation experts, including the Australian Institute of Superannuation Trustees, have called for super to be paid on paid parental leave for years, arguing it’s the only form of rest that super is not paid on, unlike sick leave and extended service leave.
“Women have, on average, four career breaks during their working lives, with the top reasons being maternity leave and childcare,’’ a spokesperson said.
“As a result, women’s retirement savings stall at various points throughout their working (lives), leaving many women financially insecure in retirement. “When you take annual leave, sick leave, and long service leave, you’re paid super. But you don’t get super on your paid parental leave whether the government or your employer pays for your leave.”
Superannuation Minister Jane Hume has previously described improving women’s retirement incomes as an issue she was “passionate” about helping to fix. “Look, there are a lot of structural features of the superannuation system that disadvantage women,’’ she told 2GB radio.
“Super was invented 30 years ago and, to be honest, it just wasn’t ‑ it wasn’t invented with women in mind. It was built for a man who starts his career at about 19, works without a break until 65, and then retires with a gold watch and his pension. It doesn’t account for breaks in the workforce. It doesn’t account for caring responsibility. It doesn’t account for the gender pay gap. So these are your structural inequities that I think that we can address far better.”
Other measures to boost retirement savings in the budget
– Extending downsizer contributions when you sell the family home to people 60 and over rather than 65. This allows people to make a one-off contribution of up to $300k to super from proceeds of the sale of a home outside the normal contribution caps. More women than men have used the downsizer contribution so this will also substantially increase their super balance.
– Repealing the work test for individuals aged between 67 and 74. Currently, you have to work 40 hours within 30 days to make voluntary contributions (both concessional and non-concessional), but this really limits people who have not had the benefit of compulsory super throughout their working lives from making contributions that would help secure their retirement. This change means people between 67 and 74 who may have already retired, are doing volunteer work, or have more flexible work arrangements can continue to make voluntary contributions or salary sacrifices.
– Extending the first home super saver scheme from $30,000 per person to $50,000 per person. And allowing eligible single parents to buy a home with as little as 2 per cent under a new government scheme designed to help single income families buy their first home and re-enter the housing market after divorce.