Gender inequality in the retirement savings gap

In a highly topical Superannuation Plenary session at the 2021 All-Actuaries Virtual Summit, David Knox, Michael Rice, and Richard Dunn shared their recently published research paper on the gender pension gap.

To set the context, David explained that according to the OECD, the current gap between male and female pensions in payment was 15.3 per cent, with the gap defined as the difference between male and female pensions, including both superannuation and Age Pension benefits. While this is a disappointingly significant gap, Australia ranks relatively well against the other OECD countries, coming in 7th best out of 34 countries.

So, what drives the gap and how can Australia do better? With gender equity high on many stakeholders’ agendas, this is the perfect time to explore and act on solutions.

David noted the superannuation gap (which is based on wages) is greater than the resulting pension gap, with the means-tested Age Pension providing an important offset.

“There are a number of contributing factors here including employment, pension design and society; they all have an impact on the gender pension gap,” commented David.

Many of the employment issues are well known, such as women typically having shorter careers, more likely to be in part-time work and in lower-paid industries, having more time out of the workforce, the existence of an ‘unaccountable’ pay gap for the same job, and the effect that compounding these issues has over time.

Issues in pension design include the $450 per week threshold for superannuation guarantee payments which disproportionately exclude women from the superannuation system and a lack of superannuation while on paid parental leave or out of the workforce. There is also a trio of effects due to women’s relative longevity – a lack of survivor benefits, limited pension indexation and the move from a defined benefit to a defined contributions system.

Societal issues which tend to disproportionately affect women include affordability of childcare and the relative allocation of assets in the event of a divorce or separation. Collectively factors such as these result in women having lower accrued pension benefits (noting these are potentially offset by other assets).

Michael provided an overview of the various activity that has been underway in Australia to address the pension gap. The Women in Super advocacy group began in 1994 and corporates have been advocating for change and implementing reforms in their own workplaces, including Rice Warner.

There have also been two inquiries – a Senate inquiry in 2016 on women’s economic security in retirement, whose recommendations were not pursued, and the Retirement Income Review in 2020. The fact base from these includes that the Age Pension provides strong support for women as a safety net in retirement and poverty is particularly high amongst older females who rent.

From top left, Michael Rice, Richard Dunn and David Knox.

“The problem [of the pension gap] is a difficult one because there are many ways to solve it and there are many different cohorts, all requiring a slightly different solution,” observed Michael.

He believes addressing the gap is going to need a series of incremental changes and will be with us for a few generations. For example, for women in their 20s and 30s, Michael urges them to set aside more in their superannuation to provide a buffer for when/if they have a career break.

Richard shared the authors’ data analysis for Australia. Points of interest include that “undeniably there is a gap at all ages”.

By account balance it starts small, albeit significant, at a bit less than 10 per cent for ages 20-24, peaks at 35 per cent for ages 50-54 and then steadily declines. By member balances, aggregating across multiple accounts, the picture worsens – while the gap starts smaller at about 5 per cent for 20-24 year old’s, it peaks higher at 38 per cent for ages 50-54, and although it drifts down at the beginning of the retirement phase it then again increases due to women having higher draw down rates and more conservative investment allocations.

That 30-35 per cent gap in pension balances translates to an approximately 10 per cent difference in income derived due to the offset provided by the Age Pension; this is area in which the system is working very well because it is more equal.

To bring this to reality Richard noted “If you think about ASFA modest or ASFA comfortable levels, a 10 per cent difference is a real difference in what you can do with your time in retirement. There’s no way we can hang our hat on that.”

Furthermore, there are wealth and income gaps across the wealth spectrum – this issue impacts everyone. The authors forecast that while the gaps will decrease as the superannuation system matures, they will remain large and further changes are required. This where creative thinking is required, such as considering a carer’s credit as is provided in some European countries.

As parting comments session chair, and Actuaries Institute CEO, Elayne Grace asked each speaker to nominate one thing they encourage members to do to help address this gender gap. David called for further thinking to be given to unisex annuities. Michael urged senior actuaries to push for flexible workplace conditions. Richard encouraged members to have the conversation to raise awareness about the gap, including through their professional and social media platforms.

Be sure to keep an eye on Actuaries Digital for further summary reports on each Plenary session and various Concurrent sessions throughout the course of the Virtual Summit.

Read further Actuaries Digital coverage of the 2021 All-Actuaries Virtual Summit.

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