Budget Forum 2016: Does the Budget Address Women’s Economic Security In Retirement ?

On the Friday before the Budget the Senate Economics References Committee published its final report on Women’s Economic Security in Retirement, entitled “A Man is Not a Retirement Plan.”  This report represents a milestone in its recognition that the design of the superannuation system does not serve women well.

Did Budget 2016 follow through?

The Budget is broadly redistributive in respect of the superannuation system.  The Government has estimated that the net increase to the revenue is $2.9bn after redistributing over $3 bn to low income earners and in removing some anomalies.  The overall impact of these superannuation reforms is discussed in Ingles.

There are two key elements to addressing the gender inadequacies inherent in the superannuation system.  First, Australia’s Superannuation Guarantee system is based on wage earnings.  To the extent that women are over-represented among low income earners any redistributive measures will also be gender redistributive. Secondly, many women experience interrupted work patterns as they balance work with caring responsibilities.

Restoring Concessions to Low Income Earners

The Henry Review highlighted the fact that low income earners are not well served by the superannuation tax concessions.  The tax rate of 15% levied on contributions into superannuation is higher than the average tax rate paid by taxpayers who are otherwise in the zero or lowest tax bracket:  there is no tax advantage for a low income earner to accumulate superannuation when they may have other, more immediate, financial priorities.  In contrast, a taxpayer facing the highest tax rate of 47% (taxable income over $180,000) will have a tax saving of 32% by saving into superannuation.

The Low Income Superannuation Contribution (LISC) was introduced in 2012 to compensate low income earners for the 15% tax paid by the superannuation fund on contributions.  The Abbott/Hockey Government announced the repeal of the LISC in its 2014-15 budget but the date for abolition was extended until the 2017 year, following negotiations in the Senate.  Since then there has been an ongoing campaign across the welfare and superannuation sector to retain the LISC in some form (ACOSS, Women in Super, ASFA).

The Low Income Superannuation Tax Offset (LISTO) introduced in the 2016-17 Budget is the LISC by another name.  There are changes to the calculation method, but the essential feature remains:  a person earning less than $37,000 per year who has made a contribution will be entitled to a contribution from the Government that will offset the tax paid by their fund, up to $500 per year.

This measure is gender redistributive as women represent 57% of the 2.3m people that returned a taxable income of less than $37,000.  It is welcome, but it essentially returns us to the status quo by repealing an unfair measure from 2014.

Addressing interrupted work patterns

The Budget contains two measures that the Government highlights as helping carers and workers with interrupted work patterns. These are the rollover of the concessional cap (currently $30,000 per year but to be reduced to $25,000) and the expansion of the existing tax offset for contributions to a low earning spouse superannuation account.

Women’s groups, including the National Foundation for Australian Women, made submissions to the Senate Committee that the system of annual caps should be reviewed as it did not recognise the interrupted work pattern of women; and that mechanisms should be developed to assist carers who are not engaged in the paid labour market.

The rollover measure will allow a person who has taken time out of the workforce to care for children or family members to increase contributions in later years to catch up the lost superannuation.  The provision is gender blind, available to any person who has access to additional funds and has a superannuation balance of less than $500,000.

This measure only partially recognises the reality of interrupted work patterns for women who have taken a career break due to caring responsibilities: few women who return to work in these circumstances will have access to more than $25,000 to contribute in excess of the cap.  Submissions to the Senate Committee were divided on whether this would be an appropriate mechanism and how long the rollover period should be.

The new provision is available to be used by high income earners to limit the effect of the new lifetime cap on non-concessional contributions by contributing the maximum possible concessional contributions before triggering the non-concessional contributions cap.

The low income spouse offset allows the spouse of a low income earner to claim an offset for contributions into a spouse account, of up to $540 if $3000 is contributed.  While the extension of the scheme to those earning up to $37,000 is welcome, the offset is refunded to the person that made the payment (usually, the male high earning spouse), instead of being added to the superannuation account where it would compound over time, and benefit the person who benefits from the contribution.

The Budget Papers make no reference to how the new scheme will interact with the existing superannuation co-contribution scheme under which the Government supports voluntary contributions into superannuation by low income earners, by making a co-contribution of 50% of the amount contributed.  It is possible that contributions could be made under each scheme to increase the amount of the Government subsidy received.

An alternative method of providing support to carers would be an extension of the co-contribution scheme, which could be extended to support parents on Paid Parental Leave or Carer Payments who have not made a voluntary superannuation contribution.

A small improvement but more to do

Overall the superannuation measures are estimated to bring in $6.9 b over the forward estim ates, of which $2.9m is redistributed through the system.  This is a welcome redistribution of the superannuation tax concessions, although the benefits for women are less significant than suggested by the Government.

Superannuation, including voluntary savings are not the only pillars of the retirement income system.  As noted by the Senate Committee, the best ways to secure the wellbeing of women in retirement are to adopt policies that address the gender wage gap; to ensure that the Age Pension provides an adequate income level; and to address housing security.  The 2016-17 Budget does not abandon proposals to increase the eligibility age to 70, or include any measures to ensure affordable housing or Commonwealth Rent Assistance.

There is still a long way to go to ensure that women have economic security in retirement.