As the world celebrates International Women’s Day on March 8, the top investment executive at Australia’s A$60 billion ($40 billion) superannuation fund says the country’s pension savings system can help make women’s lives more comfortable in retirement.
Alison Tarditi, CIO of Commonwealth Super said International Women’s Day is an opportunity to recognise superannuation “as very much a women’s issue and to empower women to use the particular benefits of Australia’s world-class system to improve their retirement outcomes” says.
Retirement review modelling suggests that the gender gap in super savings is overwhelmingly explained by the gap in earnings resulting from a combination of work breaks, part-time employment, a gender pay gap and retirement age differentials between male and females.
“Women often take breaks in their working life to look after young families or retire early to care for elderly family members and 67% of part-time work in Australia is done by women. All else constant, this means fewer working hours of income from which to save towards retirement,” Tarditi told AsianInvestor.
While the OECD ranks Australia 7th out of 34 OECD countries in terms of its superannuation gender gap, the difference between men and women is still significant at around 25% to 35%.
But International Women’s Day is all about empowerment, according to Tarditi. There are three things women can do “to make the savings they have work harder for them,” she said.
First, and probably the most within their control, women can exercise their choice of superannuation option.
“Twenty-seven percent of our male public-sector customers actively exercise their choice of investment option, aligning their life stage to one of the three pre-mixed offerings we have designed specifically for this purpose. Only 15% of their female colleagues make this decision,” Tarditi said. Secondly, by contributing additional savings to super above what is compulsory, women can make the power of compounding work for them.
Secondly, by contributing additional savings above what is compulsory, women can make the power of compounding work for them.
“This is particularly powerful if additional contributions are made in the first 10 years of your working life,” says Tarditi. “For a woman on the average female income in Australia, the impact from contributing an extra 5% of salary to super over the first 10 years of employment, assuming an average investment return of 6% per annum, can be up to an extra four hundred and forty thousand dollars by retirement at age 65.”
And thirdly, Tarditi said time in the workforce and therefore one’s retirement age matters.
She encourages all women to “know their time horizon; understand how their super fits into their overall financial situation which includes whether or not they own or rent their home; their partnership status; other investments they have; and to be clear on their retirement goals.”
WEALTH GAPS IN APAC
The 2022 Global Gender Wealth Equity Report conducted by insurance broker WTW in collaboration with the World Economic Forum, paints a less than ideal picture for the economic position of women around the world as compared to men, according to Mark Mann, director, integrated and global solutions at WTW.
“Globally, women who start their career in similar roles to men with the same pay can expect to accumulate just 74% of the wealth that men have at retirement. In Asia Pacific, the situation improves only marginally with women expected to accumulate 76% of the wealth that men have at retirement,” Mann told AsianInvestor.
The findings of the research, published late in 2022, unfortunately serves as an echo to anecdotal sentiments that women with similar experience and skill sets to their male counterparts are paid less for the same roles and often have less opportunity for promotion or recognition.
“Our analysis found that the primary drivers contributing to gender-based wealth disparity include gender pay gaps and delayed career trajectories, and these pay gaps obviously feed into retirement savings, as contributions to retirement schemes are generally based on pay. Therefore, women receiving less pay will also receive less contributions to retirement schemes and ultimately will accumulate less wealth at retirement,” said Mann.
Additionally, WTW’s research found that gaps in financial literacy also exacerbate the divide in wealth come retirement.
“Increasingly, individuals have more control over how their retirement schemes are invested and often short-term or over-conservative investment decisions can lead to stark differences in retirement wealth over the longer term,” he said.
“An interesting aspect of this research we found was that women in senior positions tend to face the largest gaps in accumulated wealth. This is because women in senior positions suffer the compounded effect of more limited career progression and lower salaries,” said Mann.
CLOSING THE GAP
Within APAC, a number of more developed economies such as Japan and Australia are making regulatory strides towards addressing the gender wealth gap.
“Japan has seen the introduction of an annual gender pay gap disclosure requirement for large employers, while in Australia, the Fair Work Amendment Act has amended the Fair Work Act to strengthen provisions on gender pay equity. Over time, these initiatives should reduce pay gaps, and consequently translate into higher retirement savings contributions,” said Mann.
For many countries, a significant component of retirement wealth stems from company-sponsored retirement schemes and therefore the research suggests that employers also need to acknowledge their responsibility to address the disparity.
“Enhancing retirement plan design elements such as continuation of employer contributions to retirement schemes while women are on maternity leave, for example, can really help bridge the retirement savings gap,” said Mann.
Unfortunately, in the current economic climate, women cannot afford to be passive about their retirement contributions. Mann agrees with CSC’s Tarditi that there are a number of actions women can take to improve their own retirement outcomes.
“We would suggest that women make the most of any company sponsored retirement plans extended to them by their employer. Often these plans offer facilities like employee contributions, and that can enable tax efficient savings,” said Mann.
“Women need to be proactive in educating themselves on the features of their retirement plan and use any available calculators to model things like extended periods of leave on their projected savings. Additionally private savings can also form an important component of accumulated retirement wealth,” he said.