Australian women retire with 28 per cent less in their super than men, but offering tax breaks for mothers could be part of the solution, according to a major consulting firm.
The median superannuation balance for men aged 60-64 is $204,107, while it’s $146,900 for women, a gap KPMG attributes to the shorter time women spend in the paid workforce as well as lower wages overall.
However, this $57,000 gap could be partly closed by offering primary carers, who are overwhelmingly women, a rebate on the 15 per cent Superannuation Contributions Tax (SCT).
This rebate would be applied for up to five years from when the primary carer returns to the paid workforce.
“Time spent out of employment is a major contributor to unequal levels of superannuation balances, as women miss out on super contributions in some of their peak working years,” said KPMG chairman Alison Kitchen.
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“We propose the introduction of a targeted rebate of tax paid on contributions for primary carers as a mechanism to compensate for ‘women’s time out’.
“Without them, women will continue to miss out on vital income during childbearing years that can significantly impact on them later, especially in retirement.”
How would this superannuation tax rebate work?
The primary carer would claim the rebate on their tax return, with the rebate applied to up to 50 per cent of the superannuation that would have been paid if they had remained in the paid workforce.
KPMG provided two examples.
‘Lee’ had a full-time income of $50,000 in the year before she took time away from the paid workforce to care for children. In this working year, she earned $5,000 in superannuation contributions and she paid a 15 per cent SCT of $750.
During her one year primary carer period (PCP), Lee doesn’t do any paid work. However, if she had remained in the paid workforce, she would have earned superannuation contributions of $5,000 - as she had the year before.
Under KPMG’s proposal, once Lee returns to the full-time paid workforce, she begins earning superannuation again, but this time she receives a rebate on the SCT.
That means that for the first three years back, she receives a $750 payment each year, and then a payment of $250 in the fourth year.
That’s based on an aggregate SCT rebate of $5,000 x 1 year x 50 per cent = $2,500.
Under the second example, ‘Sally’ had a full-time income of $70,000 in the full year prior to her two year break from the paid workforce.
In the year before her PCP, she would have earned around $7,000 in compulsory superannuation payments and paid an SCT of $1,050.
Sally returns to work part-time during her PCP. In the first year of PCP, she works two days a week, and in her second year of PCP she works three days.
During this period, Sally’s average annual super contribution is $3,500 – half what she would have earned if she worked full-time.
When Sally returns to work full-time, she begins earning $7,000 in super again.
Under KPMG’s plan, Sally would also earn an SCT rebate of $3,500.
That’s made up of $1,050 for each of the first three years back in full-time work, and another $350 in the fourth year.
That’s based on an aggregate SCT rebate of ($7,000 - $3,500) x 2 years x 50 per cent = $3,500.
“This approach could help close the gender super gap in a significant way,” KPMG partner Linda Elkins said.
“The aim is to support the primary carer in catching up to the extent of a maximum of 50 per cent of the contributions that might reasonably have been made, had they continued to work as they did before leaving the workforce.”
Elkins noted that current options that allow primary carers to make additional contributions over the $27,500 don’t help lower-income women.
KPMG noted that there was a need to support women in lower income jobs.
“We believe a more targeted approach will prove more successful, and so our proposal is based on strict eligibility.”
The SCT rebate is just one of several proposals KPMG put forward in its latest report investigating how Australia can lower the retirement gap.
KPMG also suggested the Commonwealth make top-up contributions for primary carers rather than co-contributions.
The current scheme requires primary carers to make extra contributions themselves, before the Government adds the co-contribution.
The problem with this, according to KPMG, is it disadvantages lower income earners who may not have the means to make extra contributions to begin with.
“Given the huge potential long‑term benefits of even a small boost to a primary carer’s superannuation balance, KPMG suggests that the impact of a $500 or $1000 annual top‑up be modelled by the Commonwealth Treasury,” KPMG said.
Federal Government passes childcare subsidy changes
KPMG’s latest report comes as the Federal Government passes childcare fee changes allowing higher income earners and larger families to save more on childcare.
Under the childcare subsidy plan announced in the 2021 Federal Budget, families with two or more children in childcare will see greater subsidies of up to 95 per cent.
This means that for a family with two kids in childcare at the same time, rather than receiving the same subsidy for both sets of fees, the subsidy is 30 per cent higher for the second child, in a bid to lower costs further for families.
Additionally, families with a combined income of $190,000 or more a year will no longer have a $10,655 cap on subsidies each year.
It’s hoped that this change will encourage more women to return to full-time work.
The changes will come into effect from 1 July 2022.
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