Federal Budget 2021-22: Failure to address Super Inequality

Previous measures to address inequality in superannuation have proved largely ineffective. Has this budget addressed the failures of the previous measures or is it just more of the same?

I’m always conscious, when I’m speaking from a position of privilege, to be mindful of exactly what I say. Without reservation though, I’m concerned when I see another attempt by a government to boost women’s superannuation.

It’s not because I don’t want to reduce the retirement savings gap, or that I don’t want equality for women in retirement. I’m concerned because by and large, none of it works the way it’s intended and very little of it works at all.

Successive Governments have been more than willing to step up to the plate and admit that women, on average, retire with significantly less than men. This Government, and the latest budget is another example of a Government doing just that.

They have openly and willingly conceded, as have past Governments, that there are a number of factors that contribute to the retirement savings gap and, amongst others, the big ones are:

• Gender pay gap,
• Time away from the work force, both to raise children and as unpaid carers, and
• Societal factors impacting career choice/paths/progression.

And yet again they have tried to build solutions to the problem without addressing the issues which caused the problem.

To use one of my favourite analogies (because I love to bake) what they are doing is like baking a vanilla cake with all the vanilla cake ingredients and then wondering why it doesn’t turn out as a chocolate cake.

It’s because it has the wrong ingredients. You’ve fundamentally created something different because you’ve used different building blocks

Before digging deeper here we should be perfectly honest about our superannuation system as it is right now.

Superannuation, as a whole, doesn’t favour men over women.

What superannuation favours is the “haves” over the “have nots”

And the more you have, the more it favours you.

It just so happens that within our society, largely because of the reasons listed above, men tend to more often be the “haves” and women the “have nots.”

So why does the system favour the “haves” over the “have nots”?

The system favours the “haves” for two main reasons:

1. Super is (usually) taxed at a lower rate than your personal marginal tax rate. The higher your rate of tax, the greater the benefit you receive, and
2. Super relies on having surplus income (savings) to be able to get money into the system.

Even when we look at the compulsory superannuation contributions of employers (the 9.5% super guarantee) this is based on your earnings. Ergo, if your earnings are lower (or don’t exist at all) then you will be at a disadvantage.

So why don’t any of the measures already introduced work (well)?

The short answer is these measures don’t work well because they rely primarily on having enough spare money lying around to be able to make large contributions to the system.

Anyone who doesn’t have spare money lying around really can’t take advantage of these measures.

For example, let’s examine carry forward concessional contributions for a mother returning to the workforce. In the absolute best-case scenario in a few years’ time (once the concessional contributions cap has been $27,500 for 5 years), she might be able to contribute $137,500 of concessional contributions, but to do this she needs to meet two criteria:

1. Have enough “spare” money to be able to make that contribution, and
2. Have enough taxable income to be able claim a deduction to that effect.

Whilst it’s certainly not outside of the realm of possibility, how many people (let alone parents recently returned to the workforce) can realistically both spare that much money and are in position where they have enough income to be able to claim that level of deduction?

I’d wager it’s very few.

If you’re living hand-to-mouth and your choice is between food on the table today, or saving for super tomorrow, you will choose food on the table every time.

And so, it goes for just about all of the measures that were designed (and sold to us) as measures designed to help low income earners:

• LISTO,
• Super co-contribution,
• Downsizer contributions, and
• Work test exempt contributions.

That’s without mentioning the already quite significant caps.

In the context of a low-income earner, how many will find themselves in a position where they can now max out a full $27,500 concessional cap, or an additional $110,000 non-concessional cap on top of that?

Again, I’d wager it’s very few.

That’s not to say this won’t ever happen and that it won’t be brilliant for some low income earners but by and large these measures are likely to be targeted and utilised by the already wealthy (and they’re not doing anything wrong by doing so – good on them).

You can now throw into this mix the proposed measures in this current budget.

The only measure announced with any real and tangible impact for low income earners is the removal of the $450 per month earnings threshold for Super Guarantee contributions. Under this measure all income earners will receive compulsory employer super contributions from their first dollar of income. Low income earners will no longer be required to earn above $450 in monthly wages before they are paid super.

This measure is again, one that has been both targeted at and sold to us as a measure to increase the superannuation balances for low income earners and in particular women.

Once more I’m forced to question whether this is another measure that has severely missed the mark. 

How many low income earners would be better served by getting that payment, of only around $40 per month, made directly into their hands to help with their household bills rather than contributed to their super fund?

For once I’d wager it might just be a lot.

Don’t get me wrong, any effort to increase the utility and accessibility of superannuation to low income earners, who are disproportionately women, is admirable by its very nature but the Government desperately needed to focus on putting some serious effort into addressing the inequality issues before it gets to the superannuation system, not once it’s time to contribute.

By now we should have realised that it’s no longer good enough to continually trot out measures that don’t really address the underlying inequality at play. Do I have the answers to how we can fix this? Maybe. Probably not. No. But I do know that more of the same, more band-aid solutions and more ineffectual changes to super aren’t going to fix the problem on a large scale.

To extend my previous metaphor, it’s not good enough just putting chocolate icing on a vanilla cake.

Will it be more chocolatey?

Certainly!

Will it be better than having no chocolate icing?

Definitely!

Is it a chocolate cake?

No!

To stay informed on changes to rules and legislation subscribe to our Super Companion. It's our go-to online resource and knowledge centre – we use it internally to support our staff as they navigate SMSF accounting and compliance for our clients. It's so good that we've opened it up for all – find out more and sign up here.