The Retirement Gender Gap

A husband is not a retirement plan!

Four years ago, the Senate Economics Reference Committee released a report on achieving economic security for women in retirement¹.

The report looked at the reasons for the gender retirement gap and found that the driving factor was that men and women experience work differently. Women are more likely to work in lower paid roles and industries, to have periods out of the workforce to provide unpaid care for family members (children and aged parents) and have periods of part-time or casual work.  In addition, there is a structural issue in that some women are paid less than men for similar work.

The report made 19 recommendations to alleviate some of these problems, most of which have been ignored by government.

Retirement Income Review

The Retirement Income Review looked at this issue and summarised its findings in the Equity section of its report (section 3B – Gender and partnered status).  It confirmed that the largest contributor to the retirement gap was total earnings during a working life.  Currently the gap in male and female balances at retirement is about 17% for full-time workers but increases to 33% if you count all part-time workers too.

Fortunately, the Age Pension is a great equaliser. Through its targeted provision of social security, it reduces the annual average gap between genders for income in retirement to less than 10%, though this is more about alleviating poverty than moving people to a comfortable retirement.

There are clear patterns of wealth differentiation by demographic group.  Single women who have been separated or divorced and those who rent in retirement have much worse retirement outcomes than other Australians.  As people age, more females survive, and those who are renters are at risk of poverty.

The Review looked at different ways of closing the retirement gender gap.  The optimum method would be to increase the Age Pension and rental assistance, but that is very expensive, so we need to look at a range of beneficial changes.  For example, paying the SG to full-time carers (perhaps using the minimum wage as a proxy) would be helpful for many and would provide engagement with superannuation for those out of work.  The cost would be borne by government, but it could be means-tested to ensure good targeting.

Is the problem solvable?

Not all women will be disadvantaged in retirement.  Many younger women will benefit from the SG and will be self-sufficient in retirement.  If they, whether single or coupled, own their own home they will likely have secure retirements.  And, as the Review proposes, if they were to utilise part of the equity in their home during retirement, many more would live comfortably. Of course, younger women cannot know if they will be comfortable later in life.  Even many of those happily married in mid-life might separate from their husband later and some will struggle thereafter.

In addressing inequality in retirement incomes, some commentators have suggested material change to the settings of the superannuation system is necessary. While related, structural change to the retirement income system is unlikely to address the root cause of the gender gap. This is evidenced by Figure 1² which demonstrates (for the median female) that the majority of the 42% difference in male and female balances at retirement is the result of systemic inequality in earnings throughout her working life.

Figure 1. Attribution of the gender gap in superannuation balances at retirement (50^th income percentile)

Despite not being a panacea to solve all problems, superannuation can help to address the problem in two ways.  First, reinforce efforts to increase female wages relative to males, and to set aside enough for retirement.  Second, we could increase female contributions to superannuation:

• Pay the SG on paid parental leave – preferably for more than the statutory 18 weeks. Employers and government could share this cost.
• Look at targeting females. For example, we could pay additional SG contributions for younger females, say 2%, up to age 30.  Backed by strong education, this will empower females to think of their retirement at an earlier age.  They should be shown how extra contributions will close the retirement gender gap.

Those who fall behind could be supported in retirement via social housing and/or increased rental assistance.

On this International Women’s Day, it would be useful to pick one of the Senate Economic Reference Committee’s recommendations and implement it as a sign that we want to address the problem.  Every small step helps.

Would it be too much to ask for that in May’s Federal Budget?

¹https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Economic_security_for_women_in_retirement/Report

²Chart 3B-14 Retirement Income Review