Retirement funding gender gap closing slowly but surely

The average net worth of Australian women in the pre-retirement phase (aged 50-64 and still working) has increased by 26.8 per cent in the past 8 years, bringing it closer than ever to that of their male counterparts.

The Roy Morgan ‘State of the Nation-Spotlight on Finance Risk’ report that was released this week has shown promising signs that women are increasingly becoming self-sufficient in retirement. Despite this, the average net worth of a female pre-retiree is 63 per cent of that of her male counterpart.

Average Net Wealth of Pre-Retirees – Male vs Female

Of the 2.9 million Australian’s who are in the pre-retirement phase, 1.4 million are women. With such a large portion of the population approaching retirement or in retirement, the ability of this group to fund their own retirement without relying on the aged pension is increasingly important.

The report found that superannuation made up just over half of the average gross wealth of both male and female pre-retirees, highlighting its important place in the retirement plan of many Australians.

Financial Position of Pre-Retirees – Male vs Female 2016

“Over recent years a great deal of publicity has been given to the issue of the inequality in superannuation for women compared to men. Although progress is slow, there are now signs that the gap in retirement funding is gradually closing. This has been partly as a result of increased awareness and effort to improve the retirement funding for women and their increased participation in the workforce,” said Norman Morris, Industry Communications Director, Roy Morgan Research.

Morris went on to cite employment as a crucial factor in the increase of women’s retirment readiness. 

“Since 2008 the proportion of women employed has increased by 2.1% points, whereas male participation is down by 2.8% points. Given the compulsory nature of superannuation contributions, employment levels obviously play a major role in the level of retirement funding.”

Image source: Roy Morgan

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Learn more about superannuation

How much superannuation should I have?

The amount of superannuation you need to have at retirement is based on how much money you would expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

When can I access my superannuation?

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age – which is different to the pension age – is based on date of birth. Here are the six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

A transition to retirement allows you to continue working while accessing up to 10 per cent of the money in your superannuation account at the start of each financial year.

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

 

What is the age pension's assets test?

The value of your assets affects whether you can qualify for the age pension – and, if so, how much.

The following assets are exempt from the assets test:

  • your principal home and up to two hectares of used land on the same title
  • all Australian superannuation investments from which a pension is not being paid – this exemption is valid until you reach age pension age
  • any property or money left to you in an estate, which you can’t get for up to 12 months
  • a cemetery plot and a prepaid funeral, or up to two funeral bonds, that cost no more than the allowable limit
  • aids for people with disability
  • money from the National Disability Insurance Scheme for people with disability
  • principal home sale proceeds you’ll use to buy another home within 12 months
  • accommodation bonds paid on entry to residential aged care
  • any interest not created by you or your partner
  • a Special Disability Trust if it meets certain requirements
  • your principal home, if you vacate it for up to 12 months
  • granny flat rights where you pay more than the extra allowable amount

For full pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$253,750

$456,750

Couples living together

$380,500

$583,500

Couples living apart due to ill health

$380,500

$583,500

Couples with only one partner eligible

$380,500

$583,500

For part pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$550,000

$753,000

Couples living together

$827,000

$1,030,000

Couples living apart due to ill health

$973,000

$1,176,000

Couples with only one partner eligible

$827,000

$1,030,000

For transitional rate pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$503,250

$706,250

Couples living together

$783,000

$986,000

Couples living apart due to ill health

$879,500

$1,082,500

Couples with only one partner eligible

$783,000

$986,000

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

How is superannuation calculated?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do I change my superannuation fund?

Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How does superannuation affect the age pension?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

Am I entitled to superannuation if I'm a contractor?

As a contractor, you’re entitled to superannuation if:

  • The contract is mainly for your labour
  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

Please note that you’re entitled to superannuation even if you have an Australian business number (ABN).

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

Can I take money out of my superannuation fund?

Superannuation is designed to provide Australians with money in their retirement. The government has strict rules around when people can take that money out of their fund because it wants to prevent people eroding their savings before they reach retirement.

As a general rule, you can only take money out of your superannuation fund when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

That said, you can take money out of your superannuation fund early based on one of these seven special conditions:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia