Pension spike highlights need to boost women’s retirement savings
Although Australia’s pension system ranks first in the Asia-Pacific region and ranks 6th out of more than 40 retirement income markets covered by the Mercer CFA Institute’s 2022 Global Retirement Index, the Association of Superannuation Funds of Australia (ASFA) called for fiscal action to address the women’s retirement savings gap and strengthen the long-term sustainability of retirement income policy.
In the association’s pre-budget submission for the federal budget due Oct. 25, ASFA CEO Dr. Martin Fahy said, “While the aggregates of the system are strong, two key challenges remain: closing the gender gap and addressing the long-term sustainability of a pension system characterized by growing capacity for retirement autonomy, but a growing aging population.
The introduction of pension contributions on paid parental leave and/or a Super Baby Bonus of A$5,000 ($3,150), payable directly into people’s pensions after the birth or adoption of a child , would go some way to providing better retirement outcomes for women.
The brief also proposes that the Low-Income Superannuation Tax Compensation (LISTO) be made more generous by aligning the upper threshold for its receipt with recent changes to personal income tax rates. Women are about twice as likely as men to qualify for LISTO.
“While the pension system is well-designed and working for the majority of Australians, the latest figures from the Australian Taxation Office show a significant gap of 23.1% in pension balances between men and women in Australia. approaching retirement,” said Dr. Fahy.
“A consumer survey conducted for ASFA earlier this year found that more than 80% of respondents believed the government should take action to strengthen the super-balances of women who take time off from the labor market to have children.”
The AA$5,000 baby pension bonus paid into the person’s retirement account would be equivalent to the amount a person would receive from Super Guarantee (SG) contributions on a salary of AU$60,000 for one year.
“Rising inflation, interrupted work patterns, COVID-19 and the early release of the superannuation have all eroded the retirement savings of low-income people and women in particular,” said the Dr. Fahy.
The long-term sustainability of the country’s public pension policy is also important. As a result, ASFA proposes to fund the proposed measures for women and low-income people by reducing tax relief for retirement for high-income people and investment income for people with high account balances.
“With the aggregates of the system largely insured, the time has come to look at the equity and long-term sustainability of the pension system,” said Dr Fahy.
The submission also highlights the need for more regular payment of mandatory pension payments and the need to put in place better arrangements when pension contributions are not paid due to an employer’s insolvency.
ASFA is the leading policy, research and advocacy body for the pensions industry in Australia.
Recommendations from the Mercer CFA Institute Global Pension Index
To improve Australia’s retirement income system, the Mercer CFA Institute Global Pension Index 2022 report, released on October 11, makes the following recommendations:
• Moderate the asset test on the means-tested old-age pension to increase the net replacement rate for average earners
• Introduce a requirement that part of the pension benefit be treated as an income stream in most cases
• Introduction of a government contribution to all primary carers during the first year of a child’s life
• The introduction of a requirement to show benefit forecasts on participants’ annual statements.