Jane Hume’s plan to fix the super gender gap may help men instead
The former superannuation minister is proposing an amendment to superannuation legislation to provide spouses “with the opportunity” to evenly split their superannuation balances on an ongoing annual basis, subject to rollover caps.
Hume wants to help offset the “motherhood penalty”, apparently.
There’s little doubt women’s earnings take a hit when they shift from paid work to the unrelenting unpaid work of motherhood. It’s estimated women retire with roughly 20 per cent to 25 per cent less super than men. There are other factors contributing to this too, including women being paid less than men, either in lower-paid work or because when they do return to the workforce it’s often on a part-time basis.
Taking time out of the workforce during what is typically the important aggressive growth phase of superannuation robs women of the benefits of compounding interest on their investments. A strategy to bolster women’s super balances in their 20s, 30s and 40s is smart.
But Hume’s plan lacks any sort of impetus to drive any meaningful change.
Would asking my husband to transfer money from his super account into mine following the birth of our daughter leave me better off? The total value of our household assets would remain the same.
For argument’s sake, let’s say his balance was $300,000 and mine was $200,000. If he throws me $50,000 so we both have balances of $250,000, we still jointly have a super asset pool of $500,000. If we were to divorce, both our balances form the asset pool and get split.
Without a financial incentive that potentially would lure me or my husband to fill out paperwork necessary to execute a super transfer, I doubt I’d do it. Especially once my daughter was born, when in the months that followed my primary goal, aside from keeping her alive, was just to manage to have a daily shower.
Do we really think when women shift into a sleep-deprived battlefield of raising small children they will sit down with their husbands and ask them to throw a bit of super their way? Really?
It’s hard not to applaud anything attempting to improve gender equity. Hume’s quest to close the super gender gap is well intentioned. It significantly broadens the current couple super splitting arrangements, which allows for 85 per cent of the concessional contributions to be transferred to a spouse. This plan allows for rollovers for up to an amount that evenly would split the super balances, but the smaller balance cannot be put in excess of the general transfer balance cap, which currently is $2m.
But Hume and the Coalition, desperate to find gal pals, are barking up the wrong tree. It is hard to see how this will move the dial in a meaningful way. It may help a select few who want that warm fuzzy feeling that their unpaid work is acknowledged and are prepared to find the time for the paperwork.
Here’s what it will likely do instead: give more men tax breaks.
Here’s how.
Leeuwin Wealth head of financial advice Jason Featherby says if Hume successfully changed super legislation he would advise the higher-earning spouse (usually male) who is nearing retirement to transfer money to his wife.
So, for instance, let’s say Fred, 67, has a super balance of $700,000. Under Hume’s plan, he could transfer $300,000 to his wife, Nancy, who’s five years his junior. That puts Fred under the asset threshold test and qualifies him for a government pension while the balance can grow further under Nancy’s name until Nancy turns 67.
Next, if Featherby had a client nearing or close to a $3m balance, he would get the spouse with the biggest balance (yep, the husband) to transfer money into the account with a significantly lower balance (the wife). It puts his client under the threshold that the Albanese government is proposing to hit with an additional 15 per cent tax, and voila, no new super tax is to be paid.
In just two moves the Hume bill increases the tax burden on taxpayers and decreases the potential revenue take (although noting the $3m super tax is not yet law and is facing delay and potential restructuring).
But there’s more. Featherby adds there’s also scope to roll funds from the higher balance to lower balance to ensure the higher balance is under $500,000 and therefore able to access “catch up” contributions, potentially saving the individual substantial amounts of income tax.
But here’s where Featherby thinks the measure makes perfect sense.
“You never know when the government is going to wake up one morning and decide maybe a balance of $1m in super is too much and move to tax any pension taken from it,” he says.
“You just never know, so if a couple had a very big difference in balances, and I’m talking about a couple hundred thousand dollars, I would get them to adjust it to keep them both lower and safeguard against potential government changes.”
Financy chief executive Bianca Hartge-Hazelman says while there are benefits to the proposed bill, its implementation is flawed.
“This bill frames a systemic economic issue as a private, domestic matter to be negotiated over the kitchen table,” Hartge-Hazelman says.
“It relies on couples who already value unpaid care and are willing to share their super, but it reinforces a dynamic where one partner must ask the other for a share of what should be considered a joint asset.”
The Financy Women’s Index released on Monday shows the gender pay gap at a record low 11.5 per cent. For the first time it released modelling on how to close the super gender gap and it doesn’t require changes to legislation.
Instead, if women early in their career diverted an extra 5 per cent to their superannuation account for a decade, the gap is all but eliminated. If that strategy is used in conjunction with current super splitting arrangements, where a partner splits 85 per cent of their super contributions for a five-year period during the primary caregiver years, the female partner ends up with a higher balance.
Hartge-Hazelman says while the Hume proposal is well intended, without tax incentives it is unlikely to find a significant uptake.
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