A Harvest Special Report.
Factors that impact retirement planning for women
It is estimated that by 2019, women, on average, will have super investments half that of men*. Data from 2004, showed that 30% of women had no superannuation and that 50% of women had $8,000 or less. To compound this, women tend to live longer than men by around 3 years. By way of illustration, a 35 year old woman today has a 50% chance of living until the age of 91^. A quarter of all 35 year olds today will live to 96 and 10% will reach 100#.
It is for these reasons that women in particular need to be very focussed in regard to funding for their needs in later life.
* Olsberg & Ferris, op cit., page 6
^ Rice Warner, Actuaries
# Australian Government Actuary, Life tables (05-07)
The current situation
Currently, 58.3% of all Age Pensioners are women. And of those women, 73% receive the single rate of pension. In 2000, there were 106,000 “poor” single women compared with 40,000 men within the same classification.
80% of women have one or more children in their lifetime. And very often, women cease or significantly reduce their workforce participation in order to care for their children – effectively putting the needs of the family above their own. Minor government support aside, this significantly impacts a woman’s ability to build superannuation assets in her lifetime. Further, casual workforce participation is not always but often, secured in industries and in roles that do not pay highly.
Upon re-entering the workforce, many women will not have been able to maintain professional development or workforce skills to enable them to meet the requirements of better paying roles.
Historically, men work for an average of 39 years across their lifetime; women for an average of 20^.
^ Clare, R (ASFA) Address to Ninth Annual Colloquium of Superannuation Researchers (2001).
The current system
The current system largely links superannuation contributions to participation in the paid workforce. Further, contributions are linked to workforce income.
Some protections for women
Amendments to superannuation law in 2002, have assisted by allowing superannuation assets to be considered an asset of the marriage for which women can claim a portion upon Divorce.
Paid maternity leave, both Employer funded and potential Government funded schemes could assist in growing super account balances should super contributions be made as a consequence of any maternity leave payments. Anecdotally, there seems to be an increasing trend in this regard.
Some things that can be done now
Current support schemes and tax rules allow:
A Government funded “Co-contribution: A Government funded “Co-contribution” is available to anyone earning less than $31,920 pa. Income earners at or below this level can currently receive a dollar for dollar matching contribution to super (up to $1,000) pa. A scaled down co-contribution remains available, right up to income levels as high as $61,920. So, whilst not as generous as “matching” on a one to one basis, there continues to be government support right through to incomes at levels approaching average earnings. Go to www.ato.gov.auindividuals (tax topicssuperannuationco-contribution) for the finer details,
A Tax Rebate: Making an after-tax contribution of up to $3,000 by the end of a financial year to a low income earning Spouse’s super account (ie where their income is less than $10,800 pa), gives that tax payer a tax rebate of $540 (ie 18% of the $3,000 contribution). This strategy provides the income earner with an opportunity to boost his/her Spouse’s super (and/or defray some of the costs of life and disability insurance should there be such cover in their super fund) and to obtain a tax deduction,
Salary Sacrifice: Salary sacrifice is an arrangement where you agree to forego part of your future salary or wages in return for your employer providing benefits of a similar value. For those women earning more than $37,000 pa, this may be a good strategy to build up your super tax effectively (although you should seek advice on this),
Contribution Splitting: Having your Spouse “split” their deductible super contributions with you, may generate tax benefits and provide earlier access to super monies than might have otherwise been the case. Under the present rules, your Spouse can transfer up to 85% of their deductible contributions to your super fund (provided you are under 65 and have not retired. There are certain dollar limits to this strategy also). A benefit of this approach is that if you are older than your Spouse, you may be eligible to access these monies earlier than your Spouse might have. We suggest that you seek advice to see if this strategy would be of benefit to you.
Transition to Retirement: Harvest has assisted eligible employees to adopt a strategy that allows a person to commence what is called an “Allocated Pension” from the age of 55 and if the person is also working; concurrently sacrificing a portion of their salary into super. This is called a “Transition to Retirement (and re-contribution)” strategy. By utilising the much lower taxes found within super (up to 15%) compared with investing outside of super (up to 46.5%); this can create a very effective strategy to boost your super investments in the years before retirement.
If your earnings are such that your marginal tax rate is greater than 15%, this may be a tax effective strategy for you. Further, if you are over age 60, income earned in your fund and any drawdowns as a pension are tax free ! Please see your financial adviser or call Harvest for help if you thought this strategy may be appropriate for your situation.
First Home Saver Accounts: The Government’s First Home Saver Accounts (FHSA), were introduced by the Federal Government in 2008. Basically, the Government contributes 17% of whatever you deposit into your account (currently up to $5,500 that you deposit each year). The Government’s contribution therefore could be as high as $935 per year. You have to be over 18 and less than 65 years of age and have not previously purchased or built a first home in which to live in or rent, in order to qualify. In addition, the interest earned in the Account is only taxed at 15% and the income is not included as taxable income by the account holder.
In order to be able to withdraw your savings (the maximum amount you can hold in an FHSA is $80,000), you needed to have saved in your FHSA at least $1,000 per year for four individual financial years (they do not have to be consecutive years), and you can not withdraw money from your FHSA for at least 4 years.
If you have not owned a house previously and do not intend to do so in the future, opening a FHSA can be a good superannuation strategy as the rules allow for funds accumulated in the FHSA to be transferred into your superannuation fund! So although the main purpose of the FHSA is to help people fund the purchase of their first home, it can also be used as a government funded boost to your retirement savings.
If you would like more information or assistance in opening a FHSA, contact Harvest.
Your choice of super fund: Most employees and all non-working persons have the opportunity to choose the superannuation fund best suited to their needs. By taking an active role in choosing your super fund, you give yourself the best chance of maximising your future retirement income.
A couple each with their own super Plan will be able to secure tax benefits from each gaining access to the tax free threshold (currently $160,000).
Many modern Employer-sponsored superannuation Plans now include the ability for Spouses to effectively “join” the Employer’s Plan and to receive the same (or at least discounted) fees to those applying to the employees.
Super plans employing large groups of people (e.g. >50 employees) are also generally able to secure greatly reduced fees and charges over what might normally apply. By putting a Spouse Account into place, an employee’s Spouse may be eligible to enjoy the benefits of these fee reductions. Reductions in fees and charges can assist in accumulating more super than might otherwise have been the case.
Creating a budget: Whilst not just for women, a budget allows you to know how much money you have coming in how much is going out and will help you to better manage your finances. After doing your budget you may find that you need to cut some spending (which is, after all, what you want to do after making the effort to prepare a budget) or perhaps look at ways to increase your income. Without a budget, it is impossible to know what expenses can be cut. In doing your budget, you will identify those expenses that should be cut versus those that justify being kept. This should then “free up” some money and allow you to set goals for your savings!
Consolidate all your existing super funds: Bringing all your super together into one account can decrease your total fees – leaving more in your super account. There are sometimes exit penalties and insurance issues to consider before consolidating and it is often wise to seek professional advice before you bring all your super funds together.
Some ideas that Harvest would like to inject into the debate
• A requirement for super contributions to be paid as a consequence of payments relating to any paid Maternity Leave scheme,
• Currently, employers are not obligated to pay super to anyone earning less than $450 per month. We would like to see this threshold greatly reduced; if not reduced to zero,
• Greater incentives through a more generous Spouse tax rebate and in terms of the Government Co-contribution, we would like to see the indexation of income thresholds and an increase in the Co-contribution to at least pre-July 2009 levels,
• A refund of the contributions tax for low to middle income earners. This was suggested in the recent Henry tax review and we believe it to have merit,
• A tax deduction be made available for those seeking financial advice. Deductions have for many years been available for tax advice and extending this to financial advice will more readily allow people to put sound financial strategies into place; securing for themselves and their families, better lifestyles in retirement.
• With an ageing of the Australian population, we will see significant wealth transferring from one generation to the next. We would like to see incentives for people to retain this wealth in a superannuation or pension environment.
These initiatives would prove to be meaningful measures that would positively increase super savings for women; which in turn would contribute to a higher and more secure lifestyle in retirement.
To discuss any aspect relating to this information, please contact Mario Isaias or Noel Hucker at Harvest Financial Group on (02) 8908-4300.
All details correct as at October, 2010
GENERAL ADVICE WARNING
© 2010 Harvest. This Newsletter has been prepared for clients of Harvest. It is current at the date of publication but may be subject to change. It is not a comprehensive summary. The information contained herein is current and up to date at the time it was prepared. Harvest Employee Benefits Pty Ltd, ABN 74 107 226 693 is a Corporate Authorised Representative. Mario Isaias and Noel Hucker are Authorised Representatives of Harvest Financial Group Pty Ltd, ABN 80 111 998 068 AFS Licence No 284909. Harvest reserves the right to correct any errors or omissions and expressly disclaims all and any liability and responsibility to any person who has relied on the contents of this Newsletter.
Leave A Comment
You must be logged in to post a comment.