The May 2023 Federal Budget is an opportunity to deliver a fairer super system for women and low- and middle-income earners, says Debby Blakey, CEO of health and community services superannuation fund, HESTA.
New modelling, conducted by HESTA across their members, shows paying super on the Commonwealth Parental Leave Pay scheme and better targeting tax concessions could significantly improve the retirement balances of critical health and community services professionals and lower income earners.
Well over 400,000 HESTA members live in regional areas across Australia – the average estimated salary for a HESTA Metropolitan member is 11.65% higher than regional members.
Said Ms Blakey: “Superannuation is driven by a fundamental belief that dignity in retirement is for everyone, not just the lucky few. It’s time to acknowledge the gaps in our super system.
“Low- and middle-income earners, many of whom live in regional Australia, as well as many women need solutions sooner than later to address the gaps that currently sees them retiring with far less security than they should.”
New modelling1 in HESTA’s 2023-2024 Pre-Budget submission looks at the combined impact of paying super on the Commonwealth Parental Leave Pay scheme, extending eligibility for the Low Income Super Tax Offset (LISTO) to those earning up to $45,000 and bringing the offset in line with the current Superannuation Guarantee (10.5%).
If these key equity measures were introduced, mothers working in vital health and community service sectors could see a super boost in retirement ranging from 3.7% to more than 111% depending on how many children they have. About 250,000 HESTA members could see an increase to their super savings if the LISTO eligibility alone was extended.
Said Ms Blakey: “The Federal Budget is a chance to address the “motherhood penalty”, where women faced a more insecure financial future because they took time out of the workforce to care for children.
“Every dollar our members can add to their super counts. That’s why the Federal Budget is a key opportunity to make real progress on boosting women’s financial security in retirement.
“Our super system is one of the world’s best, but gaps remain that overwhelmingly disadvantage women and those earning lower wages.
“Now’s the time to address super’s persisting gender blind spot. Not only are these reforms the right thing to do, but our modelling also shows they could be life changing for members on low and middle incomes and would start us on the path to closing the gender super gap once and for all.”
HESTA has outlined five recommendations to the Federal Government to address persisting inequities in the super system. These include prioritising paying super on the Commonwealth Parental Leave Pay scheme, extending the LISTO eligibility and adjusting other tax concessions for high income earners. HESTA also recommends scrapping super tax concessions flowing to accounts with balances of more than $5 million and introducing a carer’s credit to assist those taking unpaid parental leave rebuild their super.
“Above all, we want to see the May Federal Budget prioritise paying super on the Parental Leave Pay scheme, as this is a key outstanding equity measure for our retirement system,” Ms Blakey said.
“It’s not just about the dollars; failing to pay super on Parental Leave Pay sends a clear message to women that unpaid caring work continues to be undervalued in our society.” Parental leave is the only widely accessed form of paid leave that does not include corresponding super contributions. This disproportionally impacts women, as women are currently much more likely to be the ones taking parental leave, who retire with around a quarter less super than men.
Ms Blakey said persisting gender, income, and structural inequities remain prevalent in Australia’s income and taxation system, flowing through to superannuation. For every $1 that women receive in superannuation tax concessions, men receive $2.522.Close to 80% of the Fund’s 970,000 members are women, with many typically low- and middle-income earners. The median super balance for female HESTA members accumulating their super is $29,377,3 and they earn an estimated median salary of $59,214.4
Ms Blakey said now is the time to take action to make our super system fairer for women and those on lower wages.
“This is a critical year for super to address longstanding inequities that overwhelmingly impact women, as they shouldn’t be financially penalised after spending their lives caring for others.”
HESTA recommendations to Government in its 2023-24 Pre Budget Submission:
Closing the gender super gap
Pay superannuation on the Commonwealth Parental Leave Pay scheme.
Extend Low Income Super Tax Offset (LISTO) eligibility to those earning up to the top of the second tax bracket, linking the amount of the offset to the Superannuation Guarantee.
Introduce an additional payment equal to 15% of concessional contributions for individuals with taxable incomes below the effective tax-free threshold.
Introduce a superannuation carer credit for unpaid parental leave.
Removing inequity in super tax concessions
Cap the amount of superannuation balances to $5 million, where investment earnings exceeding this cap are taxed at the top personal income tax rate.
Link the Division 293 threshold with the top marginal personal tax rate.
HESTA modelling showing the potential impact on member super balances at retirement from paying super on the Commonwealth Parental Leave Pay scheme and better targeting tax concessions for low income workers:
A typical HESTA member:
Potential impact to super balance at retirement from having:
Early Childhood Education & Care worker
Aged Care worker
Community Services worker
Primary Health worker
Private Hospital worker
1 See below table.
2 Australia Institute (2021). Rich men and tax concessions: how certain tax concessions are widening the gender and wealth divide (page 14)
3 As at 20 January 2023.
5 This is a forecast and is predictive in nature and as such the outcome cannot be guaranteed and may be different. Key assumptions used in the modelling include a retirement age of 67; AWOTE 3%; CPI 3%; investment return rate (real) 3% (above CPI figures, net of investment fees and taxes); investment return rate (nominal) 6.5%; wage growth (HESTA derived per industry as at 1/3/22); 32 weeks spent away from workforce (per child); age of mother 29, 31 and 33 for child 1,2,3 respectively. The modelling scenario assumptions are for an average HESTA member per industry, and include assumptions around current super balance, recent super guarantee activity, voluntary contributions (pre- and post-tax) and insurance premiums. Estimates on retirement amounts are in today’s dollars.