Super 101 - Part One
Hey lady, let’s take a deep dive into superannuation! Join us as we uncover all the things you need to know to make sense of (and work to overthrow) a system that wasn't designed by us or for us.
*As you can imagine, this is a pretty big topic, but it’s a ‘super’ important one (sorry, we had to 😂). To make sure we’re covering all the details, we’re splitting this convo into two parts, so make sure you’re following us on the socials so you don’t miss Part Two!
It’ll come as no surprise to you that women are taking a disproportionate hit as a result of the pandemic, and the 2020 Federal Budget only entrenches women’s systemic disadvantage further with just 0.038% of the entire budget focused on women. Already we’ve seen 21% of Australian women struggling enough to access their super early (compared with 17% of men); a move that might mean thousands of dollars less for women later in life. So ladies, let’s take a deeper look at superannuation.
In a nutshell, ‘superannuation’ or ‘super’ is the money put aside or ‘contributed’ by your employer (or you if you’re self-employed) to fund your retirement. It’s compulsory for employers to contribute a certain percentage of your wage into your nominated super account, known as the superannuation guarantee, which currently sits at 9.5% of your wage. But, unlike other savings/investments, you can’t access it until you retire or reach 65 years of age (except under some VERY special circumstances, i.e. a global pandemic).
Our super system came into effect in Australia in 1992 as a compulsory savings and tax relief system to support people to retire ‘comfortably’. It was designed to create a generation of ‘self-funded retirees’ to take the pressure off the old-age pension, which was predicted to buckle under the weight of an ageing population. Designed by predominantly white men in power (shocker, we know), in theory this system sounds like a good idea and, in fact, Australia’s super system is thought to be one of the most successful retirement funding systems globally. But women know the truth: the current system is deeply unfair.
The stats paint a clear picture of the systematic disadvantage both created and exacerbated by our current (not so) super system, especially for women. We all know that women retire with a stack less super than men, if they have any at all, and we don’t need to depress you even further with the numbers (we’ll let the good folks at Women in Super do that for you).
For us at Ladies Talk Money, we want to support you to know what to do about this unfair and unequal system, as individuals, as communities, and as patriarchal and racist society smashers. But first we need to know what we’re dealing with...
Why the current super system doesn’t work for women
In our recent Ladies Talk Money Live with Christina Hobbs, Co-Founder and CEO of Verve Super, we discussed all things super and why the system isn’t designed with women in mind.
During our conversation (which you can catch up on here), Christina explained that super is actually a type of tax system that allows (a.k.a forces) you to put money away now to support you in retirement. Huh? Well by having your own financial safety net and supposed ‘bucket’ of retirement savings or ‘nest egg’ as super funds seem to want to call it, you’re supposedly going to be less reliant on the government’s social security support (such as the aged pension). And the money that goes into your super isn’t taxed as heavily, so you’re receiving a tax break on nearly 10% of your income. Plus, there’s less tax charged on any money you earn or accrue from your super.
So, why isn’t super working for women? As Christina explains, one of the big reasons super doesn’t work for women is that super is tied to how much income you earn.
“We know that in a woman’s first job after graduating in Australia, women are earning (on average) $3,000 less for the same job as a man. By the time you retire, that small pay gap from your first job compounds over your lifetime and could amount to thousands of lost super.”
But it’s not just the gender pay gap that makes super unfair for women. “When women take time out of the workforce to care for children they also miss out on super because they are often not paid super on parental leave, or take time out of the workforce altogether. And the thing is this super gap isn’t the result of choices women are making. It exists because the system isn’t designed to favour us,” Christina says.
So, why does the super gap *still* exist?
There are a bunch of systemic factors at play, including: women being overrepresented in insecure, part-time and casual employment; earning lower wages for the same hours worked as men; and disproportionately shouldering the burden of unpaid care work. There’s also this thing called ‘compound interest’ that is baked into our super system and accelerates any inequitable cracks present at the start of our careers and makes them into gaping big gaps by the time our 60s and 70s come around. (More on that shortly).
While the super system requires a radical overhaul to deliver more equitable outcomes for women, one of the first steps we can take is to understand how to put ourselves in the best position possible. That means getting a handle on what super is and how it works, what fund options exist as well as practical steps we can take to help out our future self (no matter what our circumstances look like).
Why we need to retire the concept of ‘retirement’
Before we go any further, we need to talk about the concept (and it is a concept) synonymous with a very white, very capitalist notion of living in a holiday home, golfing daily and sunset strolls along the beach: retirement. The phrase is derived from the French term ‘retirer’, which means to ‘withdraw’, and is today commonly linked with an end to a career of paid employment.
But for most of us (particularly women) this is far from our reality, making ‘retirement’ a problematic term that represents a certain very pale, stale, male demographic. Our roles as carers don’t neatly end when we turn 65, with many women looking after and supporting adult children, adult children with a disability, ageing parents, in-laws, grandkids and even great-grandkids with a substantial proportion of people over 50 (mostly women) providing 20 hours or more of free childcare a week.
While caring roles are important, valuable, and oftentimes gratifying, they still mean that many women continue to work (unpaid) well into ‘retirement’, which eats away at their super balance, if they have one, and is contributing to an horrific rise in older women experiencing homelessness. While we’re at it, we also need to call out the racist and discriminatory impact of basing ‘retirement’ on average life expectancy, which we know for Indigenous women is nearly 10 years less than non-Indigenous women. These factors combined makes the idea of ‘retirement’ outdated, unrealistic and downright inaccurate, and gives a small insight into how flawed our super system is.
Let’s break down the jargon
Are you thoroughly depressed yet? It’s ok, lady, we got you. The first step to taking the power back is to learn what the heck all this money (and specifically super) lingo actually means and how we can take small actions today that result in big impacts tomorrow.
As we know, our financial system, and the language used within it, has historically been designed to exclude us and keep power in the hands of a few (mainly white men). And, in case you missed it, we created a comprehensive guide to unscrambling money jargon to help us collectively navigate the current system while we’re busy trying to dismantle it. But today, let’s focus on the terms you need to know when it comes to super.
What types of super funds are available?
Unfortunately, not all super funds are created equal. When saving for your retirement, you have a bunch of different types of super funds to choose between. So, what is the difference?
Industry super funds: are those created by trade unions or industry-specific funds (like HostPlus for hospo or Cbus for the construction industry) and historically their members were in a particular industry, exclusively. Today, industry super funds are open to the public, and they are not-for-profit funds that (generally) charge lower fees than retail super funds (more on that below). Some examples of Australia’s industry super funds include AustralianSuper, REST Industry Super, Sunsuper and Hostplus.
Self-managed super fund or ‘SMSF’: is another way of saving for your retirement where members are also trustees, meaning they are actively involved in managing their own super fund. SMSFs account for 30% of all super assets, with women making up 47% of SMSF members (as of June 2017). To find out more about the risks and responsibilities of this type of super fund, check out Money Smart’s guide to SMSFs here.
Retail super funds: are created mostly by banks, insurance companies and financial institutions and offer members a broad range of investment options. Typically, retail super funds charge higher fees but they tend to offer investment expertise and personal service to their clients in exchange for those fees. You might be familiar with some of Australia’s big retail super funds, including AMP Flexible Super, Bendigo Smart Start Super, ING DIRECT Living Super and Colonial First State. Or there are some new cool (and more ethical) kids on the block like Verve Super, Future Super, Gig Super and FairVine.
Many of you are probably wondering, well which one is best? Unfortunately we can’t answer that for you, but this comparison by Canstar might help you on your way!
Thinking about boosting your super balance? Here are some strategies to consider...
Contribution splitting: this means splitting the super contributions between partners, and can be a good strategy during parental leave to help boost the super balance of the partner who isn’t working. To set this up, simply head to the ATO website and provide your details to split your contributions.
Spouse contributions: this means the higher income earner in a relationship puts some cash into their partner’s super account. This can be a way to offset the tax for the higher income earner, too.
Voluntary contributions: for those who want to increase their superannuation, you can add additional money to your super from either your pre-tax salary (known as “concessional contributions”) or your post-tax earnings (known as “non-concessional contributions”). For more on what these types of voluntary contributions actually mean visit Canstar’s website here.
Low income super tax offset & government co-contributions: to support low income earners, there are a couple of measures available including the low income super tax offset or ‘LISTO’ and government co-contributions.
LISTO helps to reduce tax on super contributions for low income earners. For those earning $37,000 or less per year you’re automatically entitled to an offset of $500 per year, which can significantly reduce or remove the tax on your super contributions altogether.
Plus, the Government has developed a co-contribution scheme to help boost your retirement savings. For those with a total income of $33,516 or less, you can receive a tax-free contribution when you also make a contribution using your after-tax dollars. So, the Government will contribute 50 cents for every dollar you contribute (capped at a maximum of $500 per year). You don’t need to apply for this, the ATO will work out if you’re eligible when you lodge your tax return and automatically pay these extra funds into your super account.
Salary sacrificing: is when you decide to ‘sacrifice’ an additional portion of your pre-tax salary into your super fund, through your employer. Along with tax benefits, contributing that little bit extra into your super over time can really add up come retirement.
Cashback sites: did you know you can increase your super balance simply by spending? A bunch of cashback sites such as Super Rewards and Boost Your Super allow you to boost your super when you shop with their partner retailers (including big names such as Woolworths, Apple and The Iconic). Plus there are apps that automatically round-up your transactions and contribute them to your super fund, such the Longevity App.
And what are some other common super terms we might encounter?
Beneficiary: did you know that your superannuation can’t be included in your will? However, you can leave specific instructions to your super fund for how your super will be distributed in the event of your death. A ‘beneficiary’ is the person you nominate to receive the funds in your super account when you pass away. This could be your partner, children, anyone who is financially dependent on you or even a legal representative. There are different types of beneficiaries, some are binding and others aren't, so for more information, this boring but useful Government website on beneficiaries has all the info you need.
Concessional contributions: when you make a contribution to your super from your pre-tax income. These are taxed at 15% and caps apply to how much you contribute each financial year (currently sitting at $25,000 in concessional contributions each financial year).
Non-concessional contributions: when you make a contribution to your super from your after-tax income. As you’ve already paid tax on this money, these funds won’t be taxed by your super fund. To find out more about what non-concessional contribution caps apply, check out this guide from the ATO.
Preservation age: the age at which you’re able to access your super balance. There are a couple of ways to do this: you can either retire and access your super balance as a lump sum or move onto what’s known as a ‘transition to retirement (TTR) pension’ (where you subsidise your income with some of your super balance). This age depends on what year you were born. To check your preservation age, see this helpful guide from the ATO.
Trustee: super funds are run by trustees, who are essentially people or corporate bodies that have a legal duty to manage the super fund in the best interests of its members. They are governed by the Australian Securities and Investments Commission (ASIC) as well as the Australian Prudential Regulation Authority (APRA), and they make sure all the ‘i’s are dotted and ‘t’s are crossed. You’ll likely have very little to do with your super fund’s trustee, but it’s good to know who they are and what they stand for just in case.
Enjoyed this post? Be sure to check out Part Two here, where we discuss strategies for getting the most out of your super, whatever stage you’re at.
And remember, sharing is caring! Why not share these guides with some of the other ladies in your life? 💕💸
Hey lady! We want to pop in and remind you that any of the information provided in this post is general advice only, and you should always reach out if you’d like to discuss your individual circumstances and needs. Also, we don't have any direct affiliation with the super funds mentioned, nor do we recommend or endorse their services. We’ve either mentioned them for educational purposes or, we happen to think they’re doing some great things for women’s financial equality, which in our view, is a very important conversation.