The gender pay gap. How is it affecting women in retirement?

While the gender pay gap is beginning to narrow, there is no denying that this remains a significant issue in Australia.

Women on average earn $25,534 less than men every year, according to the Workplace Gender Equality Agency's latest gender pay gap report. 

This disparity is driven by many factors such as:

• time out of the workforce affecting career progression for women,
• higher rates of part-time work for women and,
• a disproportionate share of unpaid carer and domestic duties being attributed to women.

This can create considerable barriers for women trying to get ahead financially and gain financial independence, with the issues only compounding over time.

Women in retirement

When it comes to retirement, the gender pay gap means women have significantly less retirement savings, with a recent report commissioned by AustralianSuper showing that women in Australia retire with 42% less superannuation than men. The report shows that the shift in superannuation imbalances starts at age 28 - when many are starting a family. The compounding nature of superannuation returns over the long term can help individuals achieve sufficient retirement savings to retire on.

But without early and consistent contributions to superannuation, the balance may struggle to achieve sufficient growth over one’s working life to meet retirement needs. So how can women combat these alarming statistics and help to gain financial security and independence? Without support from employers and government intervention, it can be difficult to see widespread improvements in this area.

However, there are steps that can be taken now to help grow retirement savings substantially into the future.  

Salary sacrifice

Salary sacrificing into superannuation can be a great way to build up retirement savings while also reducing your personal tax liability. This process involves forgoing part of your wages/salary, which your employer then contributes into your superannuation account on your behalf.  

This is generally capped at $27,500 per year, inclusive of any additional voluntary/mandated employer contributions. By salary sacrificing into super, you will not be personally taxed on the amount sacrificed, but rather this amount will attract 15% contributions tax within super. This results in a net tax saving of 17.5% on the contribution amount for those earning $37,001 - $87,000 p.a., with tax savings increasing as your income moves up the tax brackets.

Contribution splitting

Super contribution splitting allows individuals under age 65 to transfer certain types of super contributions (namely employer and salary sacrifice contributions which are generally capped at $27,500 p.a.) to their spouse’s superannuation account. Contribution splitting to a spouse can be used as a long-term strategy to equalise the super balances between spouses, which may help to maximise the combined total of superannuation savings which can be transferred to a tax-free retirement income stream in the future.

Government co-contribution

The Government co-contribution involves the Government contributing to the super accounts of low-to-middle income earners to encourage and assist them to save for retirement. Those earning up to $39,837 p.a. could be eligible for a maximum co-contribution of $500 per year. To qualify for the maximum co-contribution, an individual must make one or more personal after-tax contributions to superannuation totalling $1,000 per year.

Spouse contribution tax offset

Individuals can make superannuation contributions directly into their spouse’s superannuation account, this is called a ‘spouse contribution’. In doing so, the person making the contribution can claim a tax offset of up to $540 (note spouse contributions do not qualify for the government co-contribution). To qualify for the tax offset, the spouse receiving the contribution must have an assessable income of below $40,000. This can assist in building retirement savings for one spouse and receiving a reduced tax liability for the other spouse. Note: the definition of a spouse for superannuation purposes includes same sex couples and de-facto relationships.

As you might have noticed, all of these strategies have a common theme; contributing to superannuation. In addition to the benefits explained above, contributing to superannuation is one of the most tax-effective means to save for your retirement due to the many tax concessions it affords.  

Timely and regular contributions, in combination with these tax concessions, can provide significant long-term growth and compounding investment returns to deliver a vast increase in retirement savings. A sizeable superannuation balance at retirement can provide a tax-free retirement income stream to help you live out your desired retirement lifestyle with independence and comfort.

For more information

In current economic conditions and with ever-changing rules and regulations, it is more important than ever to discuss your affairs with a professional adviser. Please contact your financial adviser to discuss any of your financial and investment planning requirements or get in touch with your local RSM office for further information.

This page has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.    
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