The need to look deeper on the gender gap

Transcription

1 The need to look deeper on the gender gap

2 The gender gap in retirement savings is not just about superannuation balances; a deeper analysis could help policymakers target those most in need, says Jackie Downham and Nick Wilkinson. The median projected retirement income for couples is 2% above the ASFA comfortable standard, while the median projected retirement incomes for singles are well below it. Females in couples are more strongly represented as potential recipients of LISC/ LISTO than single females where the need appears greater. There is undoubtedly a gap between men and women in average superannuation balances, though taking these figures in isolation is problematic. In this View, we have taken a deeper look at the Household, Income and Labour Dynamics in Australia (HILDA) data to analyse the gender gap in terms of projected retirement incomes. Policymakers need a more complete picture of retirement adequacy Ongoing research by Willis Towers Watson is providing a more complete picture of retirement adequacy for women. The 2014 HILDA survey covered 11,815 people aged 25 to 64 and we have used the Willis Towers Watson retirement planner engine to prepare the retirement projections in this paper. When comparing median projected retirement incomes of the HILDA population to the ASFA comfortable level of retirement income, single women show the lowest results. For policy changes to be most effective they need to be based on informed discussion and analysis of the issues and the people impacted. So where is the gender gap more prominent when it comes to retirement incomes? Figure 1a. Median projected retirement incomes compared to ASFA comfortable standard 120% The gender gap here is less than for current superannuation savings this is predominantly due to the age pension acting as a safety net. Indeed, for couples, the median projected retirement income is in line with ASFA s comfortable standard. 100% 80% 60% For singles, the situation is different. Median projected retirement incomes for male and female singles are significantly lower than the ASFA comfortable standard. Just one in four single women and one in three single men are expected to reach this level of income in retirement. 40% 20% 0% Couples Our analysis suggests that taking marital status into account in policy discussions could help target those most in need. Figure 1b. Median projected retirement incomes expected to be provided by the age pension 80% 60% 61 40% % 0% Couples 2 willistowerswatson.com

3 Comparison by gender and marital status The HILDA data provides more detailed information that allows us to consider the difference in superannuation account balances based on gender and marital status. Given that over 70%1 of people are married/part of a couple, we believe it is important to consider how the superannuation gap and retirement adequacy is impacted by marital status. Figure 2. Gender and martial status split of 25 to 64 year olds in the data 14.1% 11.7% Our starting point 74.2% Couples We started by considering males and females between ages 25 and 64 and looked at the gap between income, superannuation balance and projected retirement income. The HILDA survey provides information on household wages and salaries, superannuation balances and other household assets, from which we have projected retirement incomes allowing for age pension entitlements as well as estimates of after tax incomes. Analysis of the HILDA data shows that the difference (that is, the gap) in super balances is materially wider for males and females who are part of a couple at 50%, compared to males and females who are single, where the gap is only 24%. However when we look deeper we find that the median projected retirement income for couples is 2% above the ASFA comfortable standard, while the median projected retirement incomes for singles are well below it, with single males 15% below and single females 23% below. This indicates that considering the gender gap in super balances alone is not providing a complete picture when looking at retirement adequacy. Projected retirement income Using the HILDA data we have projected retirement incomes taking into account superannuation, the age pension and other retirement savings (excluding any family home). Figure 3 shows the median projected retirement income for single males and single females in each age band. It also shows the breakdown of the retirement income between superannuation, age pension and other savings. It can be seen from Figure 3 that the superannuation component of the retirement income for single females is approximately 32% lower than single males. Figure 3. Median projected retirement income, singles Retirement income per annum M F M F M F M F M F M F M F M F Super Age pension Other assets 1 Based on the 2014 Wave HILDA data 3 The need to look deeper on the gender gap

4 The projected retirement income for single females is 9% lower than single males. This is because the age pension will fill some of the gap caused by the lower super balances of single females. Indeed, the age pension is providing around 61% of the retirement income for them, compared to around 50% for single males. While this chart illustrates the median position, when looking more broadly we also see that single females will be more heavily reliant on the age pension than single males. How does this compare to the ASFA comfortable standard? In Figure 4, we compare the median projected retirement incomes for single males and single females to the ASFA comfortable standard. Figure 4 shows the gap, expressed as a proportion of the ASFA comfortable standard, for each age band. Again, the gap between the median projected retirement income and the ASFA comfortable standard is greater for single females than single males, demonstrating that single females are most at risk of not having adequate retirement incomes. Distribution of retirement incomes Figure 5 shows the distribution of projected retirement incomes for single males and single females relative to the ASFA comfortable standard. This shows that only 24%, or one in four, single females are expected to reach the ASFA comfortable standard in retirement, significantly lower than single males where 35%, or one third of single males are expected to reach the comfortable level. While neither statistic presents a particularly positive outlook for the retirement living standards for singles, it does illustrate a significant gender gap within the singles population. The projected retirement income for single females is 9% lower than single males. This is because the age pension is making a significant contribution. Figure 4. Median projected retirement income versus ASFA comfortable Gap between median retirement income to ASFA comfortable retirement income standard 40% 35% 30% 25% 20% 15% 10% 5% 0% willistowerswatson.com

5 Figure 5. Distribution of retirement incomes, singles Projected retirement income pa 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, % 20% 30% 40% 50% 60% 70% 80% 90% Males Females ASFA comfortable Percentile of group How can this information help inform policy discussion? We can see that the gender gap in retirement income is more pronounced for singles, while couples are generally more on track to reach a higher level of retirement income adequacy. This would suggest policy discussions should be tilted towards addressing the shortfall in retirement incomes for singles, particularly single women. An example of a recent policy announcement is the proposal to reinstate the Low Income Super Contributions (LISC). This benefit, available to low income earners, is proposed to be reinstated and renamed the Low Income Super Tax Offset (LISTO), when it is currently scheduled to cease in The eligibility for this benefit is assessed on an individual s taxable income whether they be single or part of a couple. Based on the HILDA data and the eligibility criteria for LISC/LISTO, we found that 20% of the sample had employment income which was less than the $37,000 eligibility threshold. Of the potential recipients, only 16.8% are single females and 10.7% are single males, with the remaining 72.5% of potential recipients being couples. Figure 6 also shows that females in couples are more strongly represented as potential recipients of LISC/LISTO than single females where the need appears greater. Figure 6. Potential LISC/LISTO recipients from HILDA sample 16.8% 20.0% 10.7% 52.5% Couples females Couples males If the LISC/LISTO eligibility rules were changed to become based on combined income for couples, like some other government benefits, then this benefit would become more targeted and could potentially be higher, which would help the projected retirement incomes of single females. This example demonstrates that by looking deeper into the data, it is possible to direct benefits such as LISC/LISTO to those whose retirement incomes need more support. 5 The need to look deeper on the gender gap

6 Information from the HILDA survey This paper uses data from the HILDA survey collected in The HILDA Project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this paper, however, are those of the authors, and should not be attributed to either DSS or the Melbourne Institute. While the HILDA survey collects information from surveyed households each year, there is detailed information on household assets and debts collected every four years (Wave 14 in 2014 being the most recent). This includes information about superannuation balances, voluntary superannuation contributions, other savings and investments. How results are presented In the charts in this research, we illustrate a number of median statistics for items such as household income and superannuation balances. We have chosen to display the median result so as to minimise the impact of the inherent skewness in income and wealth outcomes. The projected retirement incomes used in the charts have been discounted to today s dollars based on the effective date of the HILDA data i.e For consistency, we have compared the projected retirement incomes to the ASFA comfortable standard for singles in How the retirement income projections are conducted The projections are based on the methodology adopted in the Willis Towers Watson Retirement Planner engine which powers a number of retirement income projector tools issued by super funds as well as a number of calculators available for public use through ASIC s MoneySmart website. This methodology has been extended in this research to incorporate the additional information on individual circumstances that is available from the HILDA survey. Using this model, we project the retirement savings to the assumed retirement age of 65 and then the age pension eligibility is calculated in that year and in each subsequent year in line with both income and assets means-testing requirements. During this post-retirement period, superannuation and other retirement savings are then drawn down so that this wealth is exhausted by age 90 for males and 92 for females to reflect the longer life expectancy for females. We calculate the level of retirement income that is maintained in real terms over the period from age 65 to age 90/92. The current status as either a home owner or renter is assumed to continue into retirement and is allowed for in the age pension means-testing. Where home ownership applies, we assume this continues to at least age 90 and do not draw on this asset when projecting retirement income in this research. There are a number of life events such as marriage/divorce or home rental/ownership that we have not identified, or tried to identify, as part of this study unless they have occurred already. Future life events could also have a significant impact on workforce participation and savings capacity for individuals and households. 6 willistowerswatson.com

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8 Further information Jackie Downham Nick Wilkinson Or your Towers Watson consultant: Melbourne Sydney About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. Copyright 2016 Willis Towers Watson. All rights reserved. WTW-AP-16-SAL-5176 willistowerswatson.com