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Economics References Committee
Economic security for women in retirement
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Economics References Committee
Waters, Sen Larissa
Ketter, Sen Christopher
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Economics References Committee
(Senate-Thursday, 19 November 2015)
CHAIR (Senator McAllister)
- Mr Blake
Content WindowEconomics References Committee - 19/11/2015 - Economic security for women in retirement
KEARNEY, Ms Gerardine, President, Australian Council of Trade Unions
DALEY, Mr Brian, Capital Stewardship Officer, Australian Council of Trade Unions
CHAIR: I now welcome representatives from the Australian Council of Trade Unions. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to.
Ms Kearney : Thank you, Senator, and a very good morning to you all. Thank you for the opportunity to make the submission and present today. I would like to acknowledge the traditional owners of the land on which we meet and pay my respects to elders past and present. Economic security for women generally is a very important goal that we at the ACTU work vigorously for every day, but security in retirement is an issue that we know needs specific attention.
Retirement income in Australia is, as you know, built on three pillars: the age pension, personal savings and superannuation. None of these are ever intended to replace each other entirely, and each should work to complement the other. We support a robust and adequate age pension. Women predominantly depend on the age pension to survive in retirement. We were, I must say, disappointed by and opposed the recent changes to the age pension that will predominantly workers on middle incomes, including women, who struggle to build an adequate personal savings and asset component for retirement.
We would advise increasing the benchmark rate over time and advise against tinkering with the retirement and preservation age. The ACTU and the union movement are immensely proud of the superannuation system in Australia and acknowledge that workers forwent a three per cent wage increase to initiate award coverage of superannuation back in the mid eighties. Since that time, as you would know, it has undergone many iterations. It has been governed and re-governed, so to speak, through legislative and regulatory oversight, and is now emerging as a mighty institutional force whose fortunes are keenly coveted. But we in the union movement remind ourselves and others constantly that it is workers' capital, workers' savings and workers' futures being tossed about in financial and political maelstroms. It is therefore, as deferred wages, very much a workplace entitlement and inextricably linked to earnings and the industrial setting.
In all the recent and past discussions, debates and outcomes, the important aspect of under-superannuation of women has lagged poorly behind as an issue. Our forebears, who showed great foresight in establishing the superannuation industry, unfortunately did not anticipate the gender inequities in the system, so corrective measures were not implemented then. At last it is coming to the fore. I highly congratulate and commend the committee for this inquiry, and very much look forward to the final report and recommendations. It is an exciting contribution to the whole superannuation debate.
I am sure you have heard many times in these hearings the evidence showing that women do not achieve the aim of the retirement income system—that more women than men rely on the age pension, live in poverty in retirement and indeed fare poorly once work is beyond them. More and more indicators are emerging of the plight of women in retirement, such as the number of older women growing as a percentage of our homeless population. Our submission goes to several initiatives that we believe will improve the super system for women, starting with the obvious: increasing the contribution rate 12 per cent. We advise, as do most commentators in this area, fixing the unfair and egregious concessions on high-end super accounts, making way for a progressive taxation on savings. Low-income earners, many of whom are women, are severely penalised as the tax rate on super contributions and earnings exceeds the marginal rate of income tax for those earning below the tax-free threshold.
In other words the regressive nature of super tax concessions not only benefits those on higher incomes to a greater extent but also actually reduces the retirement savings of low-income earners by requiring them to pay more tax on super than on their ordinary income. A progressive tax system and retaining the low-income superannuation contribution, of which two-thirds of recipients are women, are critical aspects of necessary reform. Whilst the $450 threshold may have had some sense in a pre-digital world, there is now no excuse for not paying super for those earning less than $450, with the ease of record-keeping and data management systems. We support a boost to women's superannuation through a two per cent premium on mandatory employer contributions, notwithstanding the tax and transfer issues that we just heard about from the previous presenter. That does present a problem, I grant. Although one or two employers have announced an intent to pay the extra amount, we would support a permanent exemption provision in the Sex Discrimination Act, to enable employers to pay the additional amount to women.
We of course support and highly recommend super being paid during parental leave. I often hear that the answer to all these woes is to increase the participation of women in work. There is no doubt a truth in this. We know female participation in Australia is poor by OECD standards, and that decent work provides dignity generally, not only in retirement. Our submission goes into great detail to explain the reasons. Encouraging or forcing women to work will in no way guarantee that they have an adequate retirement income. The systemic barriers facing women in obtaining decent work—like access to child care, getting permanent part-time work, the gender pay gap, inadequate parental leave provisions, rampant discrimination in the workplace, caring responsibilities, lack of adequate gender equality auditing, and unconscious or conscious bias—firmly entrench the serious nature of the problem we are discussing. These are covered in our submission, and I will not go through them again.
I would like to finish by saying that women work. They contribute billions of dollars to the economy in unpaid work. They support and allow—still, in 2015—men to work. They do paid and they do unpaid work, and they deserve due attention and consideration when it comes to them having a decent and dignified retirement. Again, I commend the committee for this inquiry and thank you for your time.
CHAIR: Thank you very much, Ms Kearney. Your submission very clearly sets out that the outcomes for women in retirement are associated with outcomes in quite a number of different domains, including the operation of the pension, the operation of superannuation and the experience of women at work. Could you talk a bit about that second limb, the pension—because it is not one that the committee has spoken about a great deal to date.
Ms Kearney : The first thing is that the pension is an incredibly important part of our social protection floor. It is sometimes thought that superannuation was supposed to replace the age pension. But, in fact, the intent of superannuation was to complement the age pension. Our submission goes to the fact that many women, of course, actually rely on the pension much more than men do, and therefore the pension needs to remain robust. We do not want to get into a policy situation whereby we dramatically improve the superannuation system, but see the demise of the pension system. It is a fear of ours that that may happen. We would like to see a very robust and properly funded age pension alongside a very healthy superannuation system. Mr Daley may want to add something.
Mr Daley : The one point I would refer to in this is the recent changes to the taper, which have had a significantly detrimental effect on women, and on women in the pension age group. A number of reports were presented to the Senate at about the time of the introduction of those changes. They often refer to the classes—what we call income deciles—of people's earnings and their entitlements. It is very clear from that that there is a significant over-representation—something of the order of about 25 per cent are women in, essentially, the third, fourth and fifth deciles, the deciles towards the bottom end of the system. Those pension taper cuts acted in a manner to take away pension entitlements for people in deciles 3 to 7, and that is where women are over-represented in the system. It is obvious that the top end of the scale, at something like deciles 7, 8, 9 and 10, are extraordinarily heavily dominated by males. We know that something like 60 per cent of the tax concessions apply to people at deciles 7 and 8. Above about mid decile 8, people are out of the pension system and they were completely unaffected by the changes that went through. The changes essentially targeted middle Australia—working Australia: the people in deciles 3 to 7—and that is where women are over-represented.
Ms Kearney : We would not want to see a situation that presented a perverse incentive for women to contribute to superannuation with the fear of perhaps losing the pension—unfortunately. In our submission we also call for an increase, over time—we recognise that, and I heard Senator Edwards's concerns about cost before—to a new benchmark of 35 per cent of the full-time average weekly ordinary earnings. Given all of the barriers to closing the gender pay gap, accessing decent work and using income as a way to increase their superannuation or their retirement income, until such time as we manage to fix those barriers I think an increase in the pension would certainly go a long way to protecting women from living in poverty in their retirement.
CHAIR: We know that women disproportionately access the full age pension, and there is an argument that that is one mechanism by which, as a society, we do reward unpaid caring work. I am interested in how the members of the unions you represent feel about the certainty of the pension. We hear a lot about the importance of maintaining certainty for superannuation and having certainty and predictability about the tax settings for superannuation, but it strikes me that there is less attention paid to the level of certainty around the availability and level of the age pension in the future.
Ms Kearney : I think there is less certainty about it. It is constantly talked about in terms of a drag on the economy or as an impost. We talk a lot about an ageing population and how this is going to cost a great deal, and I think people do worry about the pension and whether it will be there when they are older. There is a lot of talk about people having to increase retirement age and feeling that they will never ever get to a point where they can access the pension. Particularly for my old industry, nursing, the concept of having to work until you are 70, for example, is just a complete anathema. I do not think people feel that they would physically be able to do that, so they worry that they will be retiring without a pension and that it is something that may well be getting beyond their grasp.
Mr Daley : I am not aware of any research that has entered into that domain, but there has been a significant amount of research about attitudinal views. We will undertake to have a look at whether any of that research that we are aware of actually deals with that direct point.
CHAIR: I wonder if I could ask you about the recommendation you make in your submission about a two per cent super bonus for women. You imagine that that would be part of the superannuation guarantee system or an associated provision? Is that how you imagine that operating?
Mr Daley : Yes, we do. We think that that should be a part of the SGC scales.
CHAIR: In the past, where we have sought to intervene for individuals with low superannuation balances, it has not been on a gendered basis. It has been on the basis of either the level of income or the level of balance. What justification would you put forward to the committee for choosing to have a gender-specific payment?
Mr Daley : We think the evidence on gender pay equity is sustained over a long period of time. It is clearly evident in all the research that there is something like a 19 per cent gap between male earnings and female earnings. The SGC at 12 per cent—two per cent is 17 per cent; the 17 per cent very closely aligns with the long-established and entrenched difference in pay equity. It is simply a measure, given that we have been unable to resolve the pay equity issue over many decades, that, until those issues can get resolved, would be a way of equalising the amount of money that women workers receive.
Ms Kearney : I think that is the key. We recognise that there is an argument to say we should not really align things along gender lines, and I do understand those arguments. But unfortunately the barriers for the pay inequity are so entrenched and so long term to overcome that this is something that could fill that gap.
CHAIR: There would be those who argue with this, as with other entitlements made available to women—for example, parental leave—that this would have an impact on employment for women. What would your response to that be?
Ms Kearney : That is always argued, whether we are talking about pay rises, whether we are talking about penalty rates, whether we are talking about raising the minimum wage. There is always an argument that there will be a reduction in employment rates. The fact of the matter is: none of those factors really have been shown to do that. I think the economic benefits would far outweigh any of those arguments. Having economic stability for women means that they have a more secure retirement, that they can contribute to the economy, that they are less reliant on welfare, that their health would be better and that they would be more productive. I think the arguments for it far outweigh the arguments that say that there would be an impact on employment, and I do not believe there is any evidence to show that that is the case.
CHAIR: In an analogous provision, for example the paid parental leave, is there any evidence that the availability of paid parental leave changes employment outcomes for women at all?
Ms Kearney : It is not my understanding that there is, no. In fact, probably quite the opposite. We find that paid parental leave has a positive effect on women's employment—that it maintains their connection with the workplace, and if women have access to paid parental leave that is useful and they find meaningful, they are more likely to stay in the workforce than leave it.
CHAIR: I would like to ask you a more general question about the nature of superannuation as, essentially, deferred income, which you do not canvass in your submission. Arguments suggest that individuals might be better served by having access to that income earlier in life. I raise it particularly in connection in housing, because the availability of housing in retirement is a key indicator of whether or not you will be in poverty in retirement. I am interested in how you see the interplay between capital formation for women early in their lives and superannuation adequacy, particularly around housing.
Ms Kearney : I think that you really have to separate the two. I think that superannuation is certainly there for a very specific reason, and income adequacy is something that we really need to deal with as well. Women are paid less. The gender pay gap is nearly 20 per cent. We have heard that the previous presenters have predominantly been in part-time work; they do not get proper access to paid parental leave. All of the issues we hear about why there is a gender pay gap need to be addressed first to really address that issue. I would be reluctant to say that superannuation would be the be all and end all to those questions.
Mr Daley : This is a common call—that superannuation money should be used to resolve many other problems that people experience in the workforce on their way through. It is very clear that the pension as it stands does not equate to the increasing measures of adequate and comfortable standards of living in retirement. I do not think that we would at all support a reduction in people's adequate standard of living in retirement to compensate for another problem in the system. We would look for solutions to those problems.
CHAIR: Thank you Mr Daley.
Senator WATERS: Thank you for your detailed submission. I would like to clarify one point. In your opening statement you were talking about progressive super tax rates. Obviously, you have full support from me on that one. You mentioned that you would also want to retain the LISC as well. I am checking your submission and you say in that that you think we should keep LISC until we get progressive super. Can I clarify whether you think there is a role for progressive super tax rates and LISC at the same time, or whether you think we should keep LISC until we can make the super tax system more fair and equitable?
Ms Kearney : I am firmly of the view that we need both. Certainly, until those income issues that women face right through their lives are addressed and the gender pay gap—and I do not think that will be in the near future—the Low Income Superannuation Contribution as well as a progressive tax system would work well together to improve retirement incomes.
Mr Daley : It is definitely the case that there are a range of people who fall below the first taxation threshold, and progressive taxation rates are not going to improve the position of those people. At the moment those people are still taxed 15 per cent going into super. It is a greater tax rate than exists for their income. Only LISC solves that problem.
Senator WATERS: If there were a tax rate of zero under the $19,000 tax free threshold, would you still need a LISC?
Ms Kearney : I would say yes, but I will—
Mr Daley : We are happy to take that on notice and do some more work and provide you with a definitive view.
Senator WATERS: Sure, that would be great. Can we move now to caring credits. You have touched on that a bit in your submission. Can you expand on your proposal in that regard and how it either relates to or differs from the Sex Discrimination Commissioner's earlier work on this issue?
Mr Daley : I think you are referring to some of the views that we have expressed in our section on childcare. Is that correct?
Senator WATERS: I am at paragraph 73 where you talk about carer payments and allowances. Is there somewhere else I should be looking?
Mr Daley : I think that is correct, Senator. I was just clarifying where you were in our submission. We have a general congress policy view on this which basically says that there are a number of people who, across the entire spectrum of Australian society, are not receiving adequate contributions to their super even though they exist substantially in unpaid work these days. We think that the carers area is one that simply stands out as an area of worthy significance at the moment. We would identify that as an area where we think an early move should be made in respect of payments to ensure that people who act as carers receive some payment towards their superannuation. But we also think that consideration is needed across a wide range of areas, particularly in respect of workers compensation, long-term disability payments and the like. I understand that these things are a cost to the government, but there is a balance between what is right and fair and proper in the payment of money to people in those situations.
Senator WATERS: Agreed. You have gone through a number of policy recommendations in your submission. Can you talk us through a bit more about the right to request flexible work arrangements?
Ms Kearney : A recent report done by the Human Rights Commission—the Sex Discrimination Commissioner, Elizabeth Broderick—found that there is rampant discrimination in the workforce in relation to women returning to work following paid parental leave. One in two women reported some form of discrimination. Most of that is related to either being demoted or not being able to access the job that they left before they went on parental leave, being forced to work a casual job or take a lower paying job in the organisation, or indeed coming back and finding that their position had been restructured away while they were gone.
The ACTU is very keen to have a provision whereby a woman's position is deemed permanent and will be there when she comes back to work in a part-time status and for the employer to actually give reason why they cannot offer that. At the moment a woman has a right to request flexible work arrangements when she comes back from paid parental leave or parental leave. The employer can just give a categorical no and the woman has no right of appeal or any explanation or anywhere to go following that. We are asking for an appeal mechanism in that case and just for that to be turned on its head, whereby the employer needs to show cause why they cannot accommodate a part-time role. We think this would go a long way to preserving women's income—if they were able to stay in that paid position that they were in before they went on paid parental leave.
Senator WATERS: It sounds very sensible to me. Thank you. Are there any other suggestions as to how to fix this incredibly complex and compounded issue of the gender pay gap in retirement, which of course is a direct result of the gender pay gap in work and the fact that we are not properly valuing roles that are either currently unpaid or somehow deemed to be less valuable to society? Are there other ones that you have mentioned in your submission or is there anything that you want to emphasise as a key reform that is required?
Ms Kearney : The ones that I outlined in my opening statement are pretty much the ones that we are focusing on. But certainly raising the superannuation guarantee, superannuation on paid parental leave and our issues around the right to request when returning to work are the very important ones for us.
Senator WATERS: They are the key ones.
Mr Daley : There are many moving parts in this.
Senator WATERS: I have one final question. I noted in your opening statement, Ms Kearney, the support for that permanent exemption in the Sex Discrimination Act for extra super contributions. I think that is a really important one. It is certainly one that we are progressing as well. Thank you very much.
Ms Kearney : My pleasure. I am familiar with that, so thank you.
CHAIR: Did you have more to add there? It is always difficult on a teleconference. Was there one thing you wanted to say?
Mr Daley : Yes, thank you for that. It is just for Senator Waters: clearly, there are many moving parts in this problem. There are lots of issues in relation to pay equity, working arrangements and discrimination in the workforce. In the end, the only solution that really adds the most value to this is putting sufficient amounts of money into the system at the early stage. The whole workforce, but particularly women, desperately need the 12 per cent contribution. They cannot achieve adequacy without it, and the additional contributions on top of that are the necessary components to have any hope of dealing with the situation, given the other issues that are out there.
Senator WATERS: Okay, so your proposed two per cent premium would be on top of the 12 per cent?
Mr Daley : The lack of the 12 per cent is having a significant impact on the adequacy of retirement needs for working people. A full 12 per cent over a working life barely meets the comfortable living standard. Essentially, we have seen certain statistics about the compounding effect that reduced contributions have on retirement incomes. Having only 75 per cent of the 12 per cent payable now for half a decade is going to have a significant impact. You could estimate a 30 to 40 per cent reduction in outcomes for people because of that lack of the extra three per cent payment.
Senator WATERS: Thanks, Mr Daley, I understand that and I agree. My final question is about your suggestion for a two per cent premium on the mandatory contributions. I just want to clarify: did you envisage that as additional to the 12 per cent?
Mr Daley : Yes, we do.
Senator WATERS: Yes—okay, thanks very much.
Senator KETTER: The only other area I wanted to touch on was the proposal in respect of super seed funding, which I see as being an attractive option. It does involve government investment in the early stages, but we are taking advantage there of the compounding that occurs. There is a payoff at the end which seems attractive. Would you like to expand on that proposal?
Ms Kearney : As you said, I think the super seed funding is a great idea, really. For younger people it would certainly kick start the compounding of their superannuation accounts. I think it is a simple way, too, of raising awareness, particularly with young people, about the importance of it.
But for low-income earners in particular and for women I think it is one of those new ideas that could be a good innovation. I do not know whether you want to add to that, Brian?
Mr Daley : We understand that Industry Super Australia has put a submission in which goes to some detailed modelling about how this works.
Ms Kearney : Yes, it has.
Mr Daley : We support that modelling. But quite clearly what we are seeing in outcomes at the moment are essentially accumulations of less than $300,000 as a standard accumulation across the system. The ASFA standard for retirement is some half a million dollars. We have heard from other people that it is difficult to make personal savings for people at that level. We are in a situation, with a large number of people moving into retirement, where the problem is that a significant number of those people have not had access to the full value of the system over their working lives, so we need urgently to be able to put more money into the system to cater for their needs—to lift them to a lump sum that will cater for an adequate retirement.
We think that super seed funding and the modelling that is shown out of that is a sensible and smart solution in that area.
Senator KETTER: Given that many people—particularly young people—have disengaged from the superannuation system, putting more value in there may well increase people's awareness of it—
Ms Kearney : Yes, I think so.
Senator KETTER: and engagement with it.
Mr Daley : Certainly. It also has that impact for young people, where there is a propensity to change jobs these days in the early part of a person's working life. That super goes backwards at that time. What this does is to help ensure that there is a continued progression in those early years, which has a significant compounding effect later in people's lives.
Senator KETTER: And given that you are focusing on low-income employees, where women are generally overrepresented, it is a measure which has some impact in this area which we are interested in with women and super.
Ms Kearney : I think it would, definitely. As I said, we are very interested in the modelling by ISA. It is an area that we would be willing to support, definitely.
Mr Daley : And it is those industries that we believe should be targeted, because those industries are clearly demonstrating the biggest problems of accumulation.
CHAIR: Can I ask a follow-on question around the super seed idea? One option would be to tie it to annual income. The other would be to attach it to super balance. Those two things are largely correlated, but do you have a view about whether it would be better targeted by targeting on the basis of income or on the basis of super balances?
Mr Daley : Our proposal has been on income. In some ways that continues to guarantee the payment of the money through important years of development. We have not done specific modelling on what you might do in respect of a balanced arrangement. The problem with a balanced arrangement might be that you may need higher levels of contribution for those people who are not progressing, if you like, satisfactorily in the balance arrangements. So that may provide a different costing to the structure than the way in which we have done that—we simply have done not done the modelling to look at that.
Ms Kearney : We have not really—
CHAIR: It may also be that it is administratively more challenging to do it on the basis of balances. I think a number of the submissions comment that the effectiveness of the LISC is its relationship to the taxation system and the fact that it is automatically administered through that system and is hence universal. Obviously this is a very complex issue. It is unlikely to be solved by a single measure. Most of the measures put forward in your submission and indeed in other submissions make a call on government revenue. If we had to prioritise between boosting individual superannuation balances or securing the pension, do you have a view about an order of priority, particularly in relation to women and low-income workers?
Ms Kearney : I would say it would be incredibly important to secure the pension given the current barriers to increasing working women's income at the moment and given the reliance on the pension. But it is one of those things that is very difficult to choose between because they both complement each other. But that I think would be our answer.
Mr Daley : Certainly securing the pension would be an absolute priority for us in respect of the way in which we approach working Australians' positions. It has not been a significant factor of public debate that the pension might not be secure albeit that people have concerns about future government revenue. What we do say about the 12 per cent, however, is that we think the estimates of the cost to government of the 12 per cent could well be reviewed significantly if the appropriate tax arrangements were brought into play so they progressively tax the system. The reason that there is a cost to government in the 12 per cent largely arises from the concessions that flow to high-income earners. If those concessions were addressed, the cost to government of 12 per cent would be much reduced and would be able to be implemented much more efficiently and much earlier.
CHAIR: Are there any final remarks you wish to make before we move onto the next witness?
Ms Kearney : I think we are done.
CHAIR: Thank you very much for your appearance today; we appreciate it.