Women who make most of Federal Budget initiatives can help close gender gap on retirement savings

Women can take advantage of Federal Budget measures to help close the gender gap in retirement savings, according to RSM Australia’s Financial Services Director Grace Bacon.

The gender gap in retirement savings is the large gap between the superannuation savings for women compared to men.

Ms Bacon said half of all women aged 45 to 59 have $8000 or less in super, compared to $31,000 for men, according to research cited by the Human Rights Commission.

“Federal Budget initiatives are a step in the right direction. There are also strategies within and outside of superannuation that women should consider, to help close this retirement savings gap,” Ms Bacon said.

On average, women are earning 21.1% or $26,393 per year less than men due to higher portion of women working part-time or in sectors that have lower wages.

Federal Budget initiatives could encourage more women into the workforce, potentially closing some of the gap between part-time and full-time work. Prior to the pandemic, the average female participation rate was 58 percent. Over the past five years, this figure has risen to 62 percent. Despite this improvement, the female workforce remains a largely untapped resource, ready to be absorbed and utilised.

Feathering your superannuation nest

With tax cuts and wage increases in female-dominated sectors on the horizon, women can be considering steps to boost their long-term financial security.

“We recognise not everyone can afford big lump sums into super, but I’d stress to women that accumulated additional contributions – even small contributions - do add up.

“It’s the power of compound returns. Whether you are in full employment, part-time or taking time off work, continuing to make personal contributions to super can make a big difference in the long run to the amount you have for retirement.”  

Ms Bacon outlined some of the key superannuation rules relevant for women looking to boost their retirement income:

• Super guarantee from 1 July 2024 - The 11% superannuation guarantee increases to 11.5% from 1 July this year and then to 12% from 1 July 2025. Check your pay slip and ensure you are being paid at the correct rate.
• Pay day super from 1 July 2026 - The Government has legislated for super contribution payments to paid into employee super funds at the same time when wages are paid, instead of quarterly. 

“This will ensure employees are receiving super contributions in a timelier manner and means their funds are invested and working for them almost immediately rather than just four times a year,” Ms Bacon said.

• Super rules for casual and part-timers - Since 1 July 2023, if you are over 18 years of age, your employer is required to pay employer contributions to you regardless of income levels. This is especially beneficial for women who work in casual or part-time employment.
• Spouse contributions - if you are a couple, your spouse can contribute to your superannuation fund if your income is below $40,000 p.a. They can contribute up to $3,000 per year to your super fund and be eligible for a tax offset of up to $540 per year.
• Unused contribution caps – women should consider using catch up contributions: if you have not used up your personal contribution limit of $27,500 p.a. you can use the previous rolling 5-year limit and make additional contributions to super. This limit will increase to $30,000 from 1 July 2024.
• Downsizer contribution – if you are age 55 or older and have sold your home that you have owned for more than 10 years, you can make a contribution to super of up to $300,000 per person.
  After-tax personal super contributions – increase to $120,000 or $360,000 over three years from 1 July 2025.
• Paid parental leave changes - Women planning to have children should be aware of the Federal Government’s planned legislation that would pay super on the Government-funded Paid Parental Leave (PPL) for babies born or adopted on or after 1 July 2025. 

Eligible parents will receive an additional 12% of their Government-funded Paid Parental Leave as a contribution to their superannuation fund and builds on the Government’s work to modernise PPL. If passed, from 1 July this year, families will have access to an extra two weeks of leave (22 weeks total), which will increase to 24 weeks from July 2025 and 26 weeks from July 2026.

“Taking time out of paid work to care for children is a normal part of working life for both parents. Paying super on Government PPL will help normalise parental leave as a workplace entitlement, like annual and sick leave, and reduce the impact of parental leave on retirement incomes,” Ms Bacon said.

“This is a positive move to help close the gender retirement savings gap and also ensure women are not financially penalised by the “motherhood penalty”, she said.

Other strategies to boost financial security for women

Building wealth outside of super and having a savings discipline can boost your retirement income.

“Consider your short and long-term goals and have a diversified portfolio to minimise risk. Generally, the longer the timeframe you have to invest, the lower the risk or volatility of your investments,” Ms Bacon said.

She recommended:

• Building savings early – whether outside or inside of super, establishing a savings plan means you are getting the benefits of compounding interest and ensuring you have a nest egg for retirement.
• Having a savings plan outside of super ensures you have flexibility to access funds in case you need capital for other objectives. Then, as you near retirement, consider moving funds into super.

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.

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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