Private retirement savings in Australia: current policy initiatives and gender equity implications.

• Author: Jefferson, Therese
• Position: Contributed Article - Report

Abstract

This article assesses the implications for gender equity of three recent policy initiatives on superannuation in Australia: (i) government co-contributions for low-income earners; (ii) an increase in compulsory superannuation contributions from 9 to 12 per cent; and (iii) the pending introduction of 'MySuper' accounts, specifically designed for those who do not take an active interest in their superannuation accumulation. Implications for gendered patterns of superannuation coverage and superannuation accumulations are considered. The conclusion is that while the first measure may have some beneficial outcomes in terms of gendered patterns of accumulation, none of the three measures appears to deal with issues associated with gendered patterns of access to occupational superannuation.

1. Introduction

   Retirement incomes in Australia are often described as being structured around three pillars: the age pension, compulsory superannuation (a form of legislated, private pension contribution), and voluntary private savings. Of these, superannuation has received relatively greater policy attention in recent months. Three key policies relevant to superannuation and retirement incomes are currently in the process of being implemented. The first of these measures will introduce a government superannuation contribution for low-income earners and the second will increase compulsory employer contributions to employee superannuation accounts from 9 per cent to 12 per cent of ordinary-time earnings. The third measure involves the introduction of a new form of superannuation default account known as 'MySuper'.

   This article outlines the policy background leading to the introduction of a compulsory superannuation scheme in 1992 and the advantages and disadvantages of the scheme for different groups of future retirees. The key role of the article is to contribute to an understanding of the extent to which recent policy initiatives might contribute to the coverage of, and the gender equity of, Australia's retirement-savings system. For the purposes of this article, gender equity is considered in terms of occupational superannuation coverage, and the extent to which compulsory superannuation either augments or reduces gendered patterns of lifetime earnings. Each of these discussions is considered after a descriptive overview of measures of men's and women's access to, and accumulation of, occupational superannuation.

2. Access to Superannuation

   Before Australia's current superannuation system was introduced under the Superannuation Guarantee Charge Act 1992 (SGC Act), there had been considerable debate about the introduction of a national superannuation scheme with, potentially, universal coverage. The implementation of occupational superannuation with employment-contingent criteria for access was largely a pragmatic response to the political and economic context of the 1970s, 1980s, and early 1990s. Prior to this period, occupational superannuation had existed as a fringe benefit among relatively well-paid 'white-collar' and public-sector workers. During the 1970s, the private, occupationally based system of superannuation was significantly expanded to a broader range of employees in response to trade unions' growing campaigns to increase access to this form of employment-related benefit (Coates, Vidler et al. 2004; Combet 2004). The 1970s in Australia were characterised by policies aimed at achieving wage restraint through a process of wage indexation: wage increases were tied to measured changes in prices. Campaigning for occupational superannuation, as a form of deferred wages, had the advantage of providing one way of circumventing the wage- indexation process (Kelly 1997, p. 62).

   The expansion of occupational superannuation arrangements continued throughout the 1980s and 1990s and may be attributed to wage-fixing arrangements, legislative provisions, and a range of political imperatives. In 1985, the Australian Council of Trade Unions (ACTU) agreed to limit a national productivity claim in return for an extension of occupational superannuation entitlements from the Federal Government. From the government's perspective, the agreement provided a mechanism to grant wage increases (albeit deferred wage increases), while not adding to rising inflationary pressures (Coates, Vidler et al. 2004). Employer groups were, however, opposed to claims that extended workers' access to superannuation (Keating 2004). They appealed to the High Court of Australia, challenging the definition of superannuation as to whether it was an industrial issue.

   In 1986, the High Court handed down a landmark decision stating that superannuation was a workplace matter and could be included in the pay and conditions specified under particular awards (Colvin and McCarry 1986; Beal and McKeown 2001). The High Court decision facilitated the incorporation of superannuation provisions into awards and led to further rapid growth in superannuation coverage. At the same time, occupational superannuation also appeared to relate to political concerns about relatively low savings levels in Australia and the ageing of Australia's population (Coates 2004; Keating 2004). The expansion of occupational superannuation culminated in the introduction of the SGC Act in 1992, which makes occupational superannuation a form of forced saving that receives favourable taxation treatment for much of the population. In terms of dealing with the retirement needs of employees and considering macroeconomic policy, the expansion of occupational superannuation was envisaged as a 'win-win' situation (O'Brien and Burgess 2004, p. 179).

   Kelly (1997) describes the use of industrial power to expand occupational superannuation as the 'effective creation of property rights to superannuation' (p.59). This description emphasises that access to mandatory employer contributions and employment-related, above-minimum provisions is associated with an employee's relative status in the labour market. Those in relatively favourable labour market positions, with higher wages and greater employment stability, have relatively high levels of superannuation coverage, which is more likely to be at above-minimum rates (Jefferson and Preston 2003; O'Brien and Burgess 2004). Those in disadvantaged labour market positions are likely to have their positions reinforced, right through to their retirement (Sharp 1992; Sharp 1995). The resulting structure represents a significant privatisation of Australia's retirement-income framework and, importantly, the associated risk of longevity (Colvin and McCarry 1986; Gallery et al. 1996; Coates, Vidler et al. 2004; O'Brien and Burgess 2004).

   Current estimates of occupational superannuation coverage suggest that predictions of uneven or inequitable outcomes are being realised. Australian Bureau of Statistics data indicate that 24.3 per cent of men and 33.7 per cent of women have no superannuation. The proportion of those without coverage varies considerably with age. The largest proportion of those with no coverage are found in the upper age ranges, approximately 42.9 per cent of men and 64.2 per cent of women aged 65 to 69 years, and 68.8 per cent and 87.3 percent, respectively, for those aged 70 years and over. These high rates of non-coverage are likely to reflect both the effect of the introduction of the SGC Act relatively late in the working lives of these age groups, and gendered patterns of work. However, even among the younger age groups, lack of superannuation is gendered. Among those aged 25 to 34 years, 8.6 per cent have no coverage compared with 15.8 per cent of all women; the comparable rates for those aged 35 to 44 years are 9.9 per cent and 16 per cent (ABS 2009, cat. 6361.0, Table 19). It is likely that some of these people will be those with tenuous labour market connection, and it will include others earning under $450 per month who do not have an entitlement to superannuation contributions from their employer.

3. Current Estimates of Superannuation Accumulations

   The expected gender inequities inherent in the design of Australia's occupational superannuation system are evident in estimates of superannuation accumulations when disaggregated by sex. The average superannuation balance for account holders is estimated to be $87,589 for men and $52,272 for women. Median balances were significantly lower, at $31,252 for men and $18,489 for women. In general terms, women's balances are approximately 60 per cent of men's (ABS 2009, Table 26).

   Women's access to employer-paid superannuation contributions is limited by their lower average earnings and fewer years in paid employment, largely due to their unpaid household work, including childcare and care of family members with a disability, chronic illness, or frailty associated with ageing. These factors effectively combine to reduce women's lifetime earnings and, consequently, their superannuation contributions. The persistence of a gender pay gap of approximately 17 to 18 per cent for those in full-time work, and gendered patterns of care provision and part-time work arrangements, suggest that there can be little expectation that current gendered patterns of superannuation coverage and accumulation are likely to change (Preston and Jefferson 2005).

4. Taxation Aspects of Occupational Superannuation

   Despite the considerable rhetoric about superannuation being one the 'three pillars' of Australia's...