Calls to raise superannuation for parents who take time off to raise children

A new plan calls for up to $1000 a year be tipped into retirement funds as well as a 50 per cent rebate to help women catch up on lost money.

Aussies who take time off to raise children should be given a 50 per cent superannuation tax rebate as well as top up contributions from the federal government to make up for time spent out of the workforce.

Low super funds is an issue that disproportionately impacts women, who continue to retire with a median superannuation balance of $146,900, a 28 per cent gap compared to men who walk away with $204,107 at retirement when aged 60 to 64 years.

In a new report, KPMG has called for primary carers of children – which is usually women – to receive a rebate for up to five years after time spent out of the workforce.

It means the primary carer would be compensated for superannuation “lost” while at home caring for children, it said.

The aim would be to allow women to catch up on half of the employer’s mandatory contributions had they not taken time out of the workforce and also encourage women to return to work, the report said.

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Women are primarily the ones to take time out of the workforce to care for children leaving a huge gap in their super fund. Picture: iStock

This approach could help close the gender super gap in a significant way, according to Linda Elkins, KPMG partner.

“The aim is to support the primary carer in catching up to the extent of a maximum of 50 per cent of the contributions that might reasonably have been made, had they continued to work as they did before leaving the workforce,” she explained.

The individual would claim the rebate through their tax return, proposed the report, with a fund balance limit of $500,000 to be eligible for “catch up” contributions.

However, with the five year limit for super rebates, it should also take into account women having more children. This means it could be broken if the primary carer took one year off, returned to work and then took time off again, found the report.

The report has also called for the federal government to make top up contributions into the superannuation accounts of largely women, who have a child of preschool age, to help lower-income earners make higher contributions to their super.

It suggested an annual $500 or $1000 top up amount with the financial implications to be modelled by Treasury.

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Top up contributions worth $500 or $1000 a year have been proposed by KPMG. Picture: iStock

How would it work?

One example was of someone who was earning $50,000 per annum before taking time off to care for children. While they were working full time, super contributions of $5000 were made, with $750 paid in tax.

They take a year off and miss out on $5000 worth of super contributions but then return to work.

If the KPMG’s 50 per cent rebate was applied, this would put $2500 back into their super.

This would be made up of a payment of $750 for each of the three years following the time off and a final payment of $250 in the fourth year to make up the total of $2500, according to the KMPG modelling.

Another example floated was of a woman with a salary of $70,000 who took time out to care for her kids but continued to work part time.

When she was working full time her super contributions added up to $7000 and she paid $1050 in tax.

While she was the primary carer she worked two days per week for the first year and three days per week for the second week, meaning she only received $3500 in super contributions – half the amount she would have accumulated in just one year working full-time.

To make up for the $3500 she has missed out on, the rebate could offer her $1050 for each of the first three years following her time as a primary carer, totalling $3150, and $350 for the fourth year of working.

The gap between women and men’s super funds can be as much as 35 per cent as women take time out of the workforce. Picture: Supplied

The gender gap

For the pre-retirement years of 55-59, the gender gap for superannuation is 33 per cent difference in the amount of money and in the peak earning years of 45-49 the gender gap is a whopping 35 per cent.

Alison Kitchen, chairman of KPMG Australia, said one of the biggest factors for the gender gap in superannuation balances was time out of the workforce to raise young children.

She added low super balances are a particularly important issue, given women’s greater life expectancy.

“Time spent out of employment is a major contributor to unequal levels of superannuation balances, as women miss out on super contributions in some of their peak working years,” she said.

“We propose the introduction of a targeted rebate of tax paid on contributions for primary carers as a mechanism to compensate for ‘women’s time out’. Without them, women will continue to miss out on vital income during child-bearing years that can significantly impact on them later, especially in retirement.”

Individuals with low superannuation balances are more likely to rely on the age pension in retirement. As at December 2020, 55 per cent those collecting the full pension were women, KMPG found.

“Financial insecurity in retirement contributes to poverty and housing insecurity of older women in Australia,” added Ms Kitchen.

KPMG national chairman Alison Kitchen said low super balances are a particularly important issue, given women’s greater life expectancy. Picture: NCA NewsWire/Gary Ramage

Other ideas

Another option floated by KPMG was removing the five-year limit on using concessional contribution caps, which currently sit at $27,500 per year.

The report argued women might not be in a position to make voluntary contributions to their super as they might be out of the workforce or working part time so can’t tip in additional cash.

But Ms Elkins added that there was a need to support women in lower income jobs, who wouldn’t be in a position to make voluntary contributions annually.

“Options that help primary carers make additional contributions in excess of the $27,500 cap will not greatly help a person on $60,000 a year,” she said.

KPMG’s report believes the changes proposed are not just good news for women’s super but for the economy too.

If the workforce participation gap between men and women was halved, it could increase economic growth by $60 billion over 20 years and offer a $140 billion lift in living standards by 2038, its modelling found.