The 'gender gap' in retirement incomes is a big exaggeration

According to the Human Rights Commission, "Right now, many women are living their final years in poverty.  If we don’t act, another generation of women will face similar prospects".   The Commission is suggesting that, in retirement, women are much worse off than men (which is largely untrue), with the Commission putting this alleged situation down to women's superannuation savings generally being much lower than those of men (which in itself indeed is true).  This line recently got a good run in the media, including from our ABC.  The ABC presented images of single women living out their old age either unable to afford to retire or having to subsist on low incomes.

The main problem with the Commission's argument (which was largely repeated in a recent Senate Report) is that it focuses almost entirely on, not merely superannuation, but on only one aspect of superannuation (i.e. retirement savings).  In 2011–12, according to the Senate Report, the average superannuation balance at retirement was $105,000 for women and $197,000 for men, neither sum being sufficient to fund much of a pension.  

What is rather more pertinent to a comfortable retirement is retirement income, which can and usually does come from other sources besides one's own superannuation pension.  By equating low women's superannuation savings with low retirement incomes for women, both the Human Rights Commission and the Senate Committee in my view present a misleading picture of women being much worse-off in retirement relative to men.  In reality, most people, irrespective of their gender are on low incomes in retirement, though this may improve when average superannuation balances get higher.

The Commission and the Senate Committee both overstate the importance of superannuation to current retirees.  They also ignore that most retired men (like most retired women) are reliant on the Age Pension, and in majority have very limited or no superannuation, so that the gender gap in incomes actually narrows in retirement.  Currently, according to the Treasury, around 50 per cent of people of Age Pension age are full-rate pensioners and around 80 per cent receive some pension. 

The big elephant in the room(in respect of the minority who are reliant on superannuation) is the spouse and death entitlements of superannuation funds, which (when applicable) greatly boost women's benefits from superannuation.  Also, for couples, income is commonly shared, including in retirement, so that both partners broadly experience the same level of affluence or poverty. 

(Outgoing) Sex Discrimination Commissioner Broderick has been "working with expertsto investigate the factors contributing to the gender gap in retirement savings.....One strategy to redress women’s disadvantage in the current retirement income system is to specifically recognise and reward unpaid caring".

Senator Jenny McAllister (Labor, NSW) chaired the Senate Inquiry into Women's Economic Security in Retirement, which last month handed down its findings.  Among the report's recommendationsare calls for Superannuation Guarantee contributions to be paid on behalf of those on the Commonwealth Paid Parental Leave Scheme; that the Sex Discrimination Act to be amended to ensure companies can make higher superannuation payments for their female employees if they wish (what happened to equal pay for equal work?); and for the gradual increase in the Superannuation Guarantee to 12 per cent be applied earlier than the current timetable.

In the context of such proposed initiatives, it is worth getting back to basics in respect of two key matters.   The first relates to the purpose of superannuation.  The second is to be clear whether inequalities in retirement income are due (a) to the superannuation system itself or (b) to the separate issue of gender inequalities in the labour market (which drive individuals' capacity to contribute to superannuation).

Superannuation is commonly definedas "money that’s put aside and saved while you’re working, so you can enjoy a regular income later in life when you retire".An essential prerequisite is that the individual has a job and a regular income, and superannuation is regarded as a mechanism for self-funded (as opposed to government funded) retirement.  Those who are jobless generally can't participate in superannuation because they lack the capacity to contribute, while those who are employed but on low incomes will inevitably end up with low income streams from their own superannuation, when they retire.

So what of the lower superannuation savings of women compared with men? 

The Human Rights Commission says that "there is a large gap between the superannuation savings of Australian men and women. Because the current superannuation system is linked to paid work, it overwhelmingly disadvantages women who are more likely to move in and out of paid work to care for family members.  Women continue to earn less than men and are more likely to be engaged in casual and part-time work, which are also contributing factors to the gender gap in retirement savings" (The argument thus far is logical).  The Commission, however, goes on to recommend "reforms" (to superannuation) that will "properly recognise and compensate those who undertake unpaid caring work".  This proposal (like the Senate Committee's call for the Superannuation Guarantee to be paid for those on paid parental leave) can only be taken to imply that the government is being "dobbed-in" to make super contributions on behalf of these women.

The key difficulty with this line of argument is that public funding of superannuation contributions for those doing unpaid caring work (or on parental leave) goes against the basic concept of superannuation being funded by employers and employees.  The proposal in effect is a type of welfare.  It is also discriminatory and biased in favour of women (because it only covers unpaid work in areas dominated by women).  The proposal would also be potentially costly to government, would not necessarily target the most needy, and is unlikely to be affordable in the current Budget context.  Devoting an equivalent amount of resources to increasing the age pension would probably result in a better targeted outcome.

Besides all this, it is absolutely clear that the origins of the gender inequality described lie, not in the superannuation system itself, but ultimately in the labour market and also in the work/lifestyle choices made by women themselves.  If these issues are to be addressed at all, this should be done in the context of the labour market, and not by corrupting the superannuation system.

At this point is worth reviewing the broader nature of superannuation as it affects men and women in society. 

The traditional defined benefit superannuation funds (now mostly closed to new members) cover most former public servants (like myself) as well as many retirees from large companies.  These defined benefit funds have two characteristics that greatly benefit women.  They firstly offer retirement pensions that generally are not actuarially-based so that retiring women (even though they live on average live five years longer) get the same annual pension as retiring men with comparable service and contributions.  Secondly, in defined benefits' funds, women (as spouses) also disproportionately benefit from usually very generous death benefits from their partner's superannuation. 

For example, in the CSS scheme, to which I belong, my wife will receive 89 per cent of my indexed pension, if I die while our two sons are still in education.  Alternatively, she will receive 67 per cent of my pension, if I die and she has no dependents.  As my wife is five years younger than me, statistically she is likely to outlive me by about ten years.  Under such a scenario she can be expected (as a widow) to receive not one but two pensions: her own superannuation pension related to her own employment plus (eventually) 67 per cent of mine.  Her actual retirement savings will thus be far from the only contributor to her retirement income.

Most working Australians now have their super in an accumulation fund, which uses the accumulated sum to purchase an account-based or allocated pension after the member reaches preservation age.  A death benefit is normally paid to the surviving spouse, as either the superannuation account balance or a pension (which involves the surviving spouse keeping the benefit within the fund).  Such spouse death benefits are generally substantial but not as generous as those in defined benefit funds.  In future years these benefits will play an increasingly important role in funding the retirement of widows and (to a lesser extent) widowers.

In relation to divorce it should also be noted that the Family Law Act 1975 and the Superannuation Industry (Supervision) Act 1993 (SISA) both allow an interest in superannuation or a super payment to be divided or split by agreement or court order in the event of a relationship breakdown.  This is another mechanism whereby women can benefit from their partner's super.

Overall, the Human Rights' Commission and the Senate Committee both have it wrong when it comes to identifying the groups most disadvantaged by Australia's superannuation system.  By ignoring income sharing between partners, death benefits from superannuation to surviving spouses, and that the majority of retirees currently receive little by way of superannuation income, they are over-playing the "women's disadvantage" card.

I would argue that it is not women but single people who are dudded by Australia's superannuation system.  Singles and married persons are generally subject to the same contribution rates to superannuation.  Married persons, however, (especially in defined benefit funds) generally receive much more generous death benefits, while spouse pension benefits are totally inapplicable to singles.  Singles therefore get much less "bang-for-their-buck" from the superannuation system (discrimination based on marital status?), yet the Human Rights Commission and its fellow travellers remain silent on this matter, as they always seems to do when singles or those without children are discriminated against.

To get back to women and superannuation, the cover of the Senate Committee Report trumpets the (feminist?) slogan "A Husband Is Not A Retirement Plan".  This slogan denies both historic practice and aspects of reality.  While nobody likes dependence (now as well as years gone by) and women are far more independent today than in the past, there is no denying (the politically incorrect fact) that a well-to-do spouse can and usually does make a big difference to one's standard of living both before and after retirement.  His or her superannuation (not to mention inheritance) definitely can make an appreciable difference to a surviving spouse.