ONE thing seems to have been overlooked in the heated debate this week about the government's proposed superannuation changes: the Coalition has a potentially powerful advantage in key marginal seats it holds – older women facing an impoverished retirement.
Amid claims Coalition backbenchers would push for changes to the super policy, Labor seizing on the suggestions of Coalition disunity - and then the Prime Minister slapping down suggestions the changes could be watered down, the super catch-up proposals the government included in the May budget hardly rated a mention. At the moment, the annual limit salary sacrifice into super is $35,000 for over-50s and the cap is lost if not used each financial year. The government has proposed lowering the cap to $25,000 for everyone from July 1, 2017. The cap will continue to include compulsory superannuation, which is 9.5 per cent of salary. However, the budget proposed that anyone with a superannuation account balance of less than $500,000 be allowed to "carry forward" - or accumulate - any unused caps for a five-year period. That would allow those who return to the workforce to make up for lost time in the final years before retirement.
The Coalition's catch-up proposals are designed to help people like Janelle Taniane, who works full-time as a nurse manager after having worked part-time for many years to care for her three children.
She has been sacrificing some of her salary into super for the past 10 years, even though she was working part-time for most of that period. As a result, Janelle hasn't been sacrificing anywhere near the salary sacrificing cap of $35,000 a year for over-50s. But as she now works full-time in a well-paid job, she can afford to put more money into her super.
Salary sacrificing is the most tax-effective way to save for retirement because the income tax that would have been paid on the salary going into super is replaced by the 15 per cent superannuation contributions tax.
"I will keep working as long as I am able, as I enjoy working and that will also help me financially when I retire," Janelle says.
She plans put as much into her super as she can while she is still working and says the $25,000 cap is too low but thinks the cumulative cap is a good idea.
If the proposal becomes law, from July 2017 any unused cap from the first year can be added to the following year's cap of $25,000. After five years, any unused cap will be lost. In effect, it allows Janelle to make salary sacrifice contributions of up to $125,000, less compulsory super, over the five years from July 1, 2017. The cumulative cap will help her boost her retirement savings at the time she has the cash flow.
"If your wage increases through more hours or a promotion, you are able to salary sacrifice more than the annual cap and that is a good incentive," Janelle says.
Other changes proposed by the government restrict how much the well-off can have in the retirement phase tax-free to $1.6 million.
Facing pressure from nervous Coalition MPs in marginal seats over the super changes, Prime Minister Malcolm Turnbull said this week the changes would make super "fairer and more flexible".
"As everybody knows, our changes to super mean that 96 per cent of Australians in the super system are either better off or unaffected," he said.
The crucial demographic
There are nine marginal seats held by the Coalition that have significantly more women in their middle to late 50s than the national average. This could be a crucial demographic for the Coalition with polls showing the July 2 election will be close.
In the Tasmanian seat of Lyons, 7.7 per cent of the electorate is aged between 55 and 59 compared to a national average of 6 per cent. Lyons is held by the Liberal Party by 1.2 per cent.
The bellwether seat of Eden-Monaro in NSW is held by the Liberal Party on a margin of 2.9 per cent after the recent boundary redistribution. Its population of 55 to 59 year olds makes-up 7.4 per cent of the electorate. It is women in their mid to late 50s who have increased their hours of paid work who are the most likely to be able to take advantage of the proposed catch-up measures. As well as perhaps doing more hours of paid work, their children have finished school and the mortgage, if not paid off, is much smaller.
Australian Bureau of Statistics figures show that in the 2013-14 year, the latest available, the median super balance for women aged 55–64 years was $80,000; the men's median was $150,000. Reasons for the retirement savings gap include the gender pay gap and career breaks, often to look after young children and caring for aging parents.
Monash University politics lecturer Zareh Ghazarian said measures hitting the well-off are unlikely to make a difference in the election. They usually live in the wealthier suburbs held by the Coalition on big margins, he says. But the proposals aimed at women to catch-up on their super have the potential to make a difference in marginal seats, Dr Ghazarian says.
"The government will be hoping that this policy will be enough to maintain support in the seats it holds and shift support from Labor in seats it is aiming to win," he says.
There are only four seats held by Labor on margins of less than 5 per cent with outsized populations of 55 to 59 year olds. The largest population of 55 to 59 years olds among the marginal Labor seats is Richmond in NSW, where they make up 7.6 per cent of the electorate. Labor holds Richmond on a margin of 1.6 per cent.
However, Dr Ghazarian says the positives of the Coalition policy for older women may be lost on voters in these electorates. "The government has muddied the waters somewhat by announcing the proposals in the budget and then quickly calling the election," he says. "It may be the case that the policy proposal may have been lost amongst the election campaign."
The superannuation industry is supportive of the super catch-up proposal. Tom Garcia, the chief executive of the Australian Institute of Superannuation Trustees, says: "It is a sensible policy measure that recognises our super system needs to become more flexible in line with the way people work."
"Not everybody works consistently for 40 years and workers - particularly women who take career breaks to care for family members - shouldn't be penalised," he says. "The government has recognised that the system shouldn't be one size fits all."
Andrew Heaven, a financial planner with AMP, says the rolling cap gives people a "last gasp" at saving for their retirement. "The proposals provide a lot more flexibility for middle income Australians, especially older workers."
However, the proposal has its critics. Chief executive of the Grattan Institute John Daley says the reforms will mostly benefit younger higher-earning men. It may even widen the retirement savings gender gap.
Writing for The Conversation website, John Daly and Grattan Institute Fellow Brendan Coates argue few middle-income earners, and even fewer women, make large catch-up contributions to their super fund.
"Most women simply can't afford to make large catch-up contributions," they write. "A mere 2 per cent of women with superannuation balances of less than $500,000 – 130,000 people – made pre-tax contributions of $25,000 or more in 2013-14 ... And 80 per cent of them are among the top 20 per cent of income earners."
"Instead of helping women and carers to catch-up, allowing unused caps to be carried forward is likely to help younger high-income earners, overwhelmingly men, to get even further ahead".
Key facts about the super-catch up proposal
- Lower super salary sacrifice caps: from $35,000 a year now for over-50s to $25,000 for everyone from July 1, 2017.
- Those with super account balances under $500,000 will be able to carry forward their unused salary sacrifice caps for five years.
- The Low Income Superannuation Contribution lives on beyond July 1, 2017 when it was to be axed by the Coalition. Those earning less than $37,000 receive up to $500 into their super accounts from the government. It is to be renamed the Low Income Superannuation Tax Offset.
- From July 1, 2017 the income threshold of the low-earning partner will be increased to $37,000 from $10,800. The higher-earning spouse can pay up to $3000 in the lower-paid spouse's super account and the higher-earner receives a rebate - worth $540 on $3000.
- The budget leaves the co-contribution scheme unchanged. Under the scheme, if income is under $35,454, up to $1000 of after-tax income can be contributed into super account. The government matches each dollar of after-tax contribution with a payment of 50¢. The incentive shades out at income of $35,454 and cuts out altogether at $50,454.
