In our article yesterday on the Female Financial Fallout from COVID, we touched on the important effects to women’s superannuation. We wanted to continue this conversation as it really is a vital part for women’s financial wellbeing – luckily for us, Kelly Power, General Manager of Colonial First State Super lent us her ear to pose a few questions around the recovery of female’s superannuation. Here’s what she had to say:
What changes do women need to make to recover their withdrawn super?
Planning for the future starts with taking an active interest in your superannuation. This means knowing where your super is, understanding how much you currently have and working out what you will need to lead a comfortable lifestyle in retirement. There are a number of free tools like ASIC’s MoneySmart retirement planner calculator that can help with this.
For women who are back at work and able to do so, making a small super top up of just $10 a week could make a big difference over the long term and how much money you have in retirement. For example, by salary sacrificing just an extra $10 per week of before-tax income, a 35 year old could save an extra $20,782* in today’s dollars by retirement at age 67.
It’s also worthwhile understanding what eligibility you might have for government support. For example, you may be eligible for the low income super tax offset (LISTO) if your finances have changed. LISTO is a government super payment of up to $500 per year to offset tax on concessional contributions and help low income earners save for retirement.
How will super funds look at addressing any further disparity in the superannuation gap?
An important area where the industry can improve is how it communicates with customers – we need to remove the jargon around super to make it more accessible. This begins with training customer facing staff so they are equipped with conversation tools to explain financial concepts clearly and simply.
Many women would benefit from further initiatives and incentives to make additional contributions to super to ensure they have adequate retirement savings. Policy should focus on allowing opportunities for women to rebuild contribution levels and balances where possible. This includes continuing with the legislated increases to Superannuation Guarantee as well as making discretionary superannuation contribution policies as flexible as possible to ensure everyone, including women, has the ability to make up lost ground as the environment recovers.
Other measures include mandating super contributions on paid parental leave and removing the $450 per month threshold for superannuation to be paid. This will also improve the retirement savings adequacy for low-income earners and casual participants in the workforce who often hold multiple jobs, many of whom are women.
How many years do you project it will take for women’s superannuation to return to the same levels?
It’s important to remember that a number of women have lost their jobs or had their work hours reduced as a result of Coronavirus. They are doing it particularly tough at the moment and the early release scheme has been a vitally important initiative to help them navigate the crisis.
The ability to make super top ups will impact the number of years it will take for an individual’s superannuation to return to the same levels. Naturally, the greater the $ value of the tops ups you make, the smaller the amount of time it takes to recover the loss. For example, by salary sacrificing an extra $51 a week, it will take a 35 year old man or woman 10 years to return to the same level they were at before the withdrawal. A top up of just over $96 a week, would result in a 5 year period to recovery*.
What is the estimated average loss of income for a future retiree that has withdrawn super?
If they didn’t make any additional contributions, a 35 year old would see an annual reduction of $1,941 a year or just over $37 per week income at retirement*.
| *Assumptions: | ||||||||||
| Member is at relevant age on 1 July 2020 and makes a withdrawal of $10,000 on 30 June 2020 and a further withdrawal of $20,000 on 1 July 2020. | ||||||||||
| Loss of retirement savings is determined using ASIC calculation on its website, using 7.5% earnings, 0.085% investment fee, 7% effective tax rate on earnings and 4% inflation rate. Results shown are in todays dollars | ||||||||||
| Salary sacrifice amounts are determined using a calculation with the same assumptions to regain the lost amount by retirement. Salary sacrifice contributions are deemed to be made half way through the year and increase each year in line with inflation of 4% | ||||||||||
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
