Women and Superannuation

14 May, 2014

Let’s be honest, superannuation is definitely not the most attention-grabbing topic we can discuss.  But here’s the thing.  Unless you like eating baked beans in your retirement, superannuation is really important.

For women trying to accumulate superannuation, it can be a really difficult thing.  The way that the Australian superannuation plan is designed assumes that the worker has long and continuous periods of employment over which contributions can be made.

The problem for women is that their careers can be characterized by a pattern of broken periods of employment.  There can be gaps in employment because of childcare responsibilities.  This gap can be over many years and can do serious damage to the contributions women are able to make to their super.

To add to this, on return to work it can be on a part time basis which further damages the steady accumulation of super.  Another factor is that the earnings of men are still significantly higher.

When all these factors come together, the result is that there are significantly lower contributions over time and the compound interest phenomenon is not as evident resulting in smaller superannuation balances on retirement.

It all seems a bit bleak doesn’t it? Don’t worry there are some things you can do to offset this risk.

The primary thing that women can do is to raise their contributions and raise them earlier in their careers. The research (Basu Drew (2009) ‘Gender and Super’ The Australian Economic Review, vol. 42, no. 2, pp. 177–89) shows that women who contribute more to their super earlier in life can overcome the hurdles faced by the gaps in their employment. While it can seem daunting to reduce your paycheck, if you can cut back 3 or 4% now it’ll be worth it in the future.

Another beneficial strategy is increasing the aggressiveness of your investments within the fund.  This may depend on your money personality and whether you are comfortable with a more aggressive investment strategy.  The research once again shows that, when coupled with increased contributions, aggressive funds tend to perform much better over larger amounts of time.

The last thing we can say is to be aware of your super if you’re involved in a family law dispute. If you weren’t already aware, in family law your super gets thrown in the mix for division along with the rest of your assets.  It is not uncommon to see a trade off to settle a family law matter by leaving the super alone or taking a lesser cut of the super.

What is happening in the family law matters is that the immediate needs are given a greater priority than the long term savings.  And watch out for tricks such as dividing the super by only taking a bit of what accumulated during the marriage relationship.  This is not the law. Everything is on the table and if there has been broken work patterns and child care responsibilities, this should be set off by more of the super.

So the lesson is take notice of your super and it will serve you well in retirement.

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