How a simple tax rebate could narrow the super gap for mums
Taking time off work to raise children has put women behind the superannuation eight-ball, but could a simple tax rebate help even the gender divide?
Yes, according to a new report by KPMG.
The median superannuation balance for men aged between 60-64 years is $204,107. By contrast, women in the same age group have a median balance of $146,900, 28% less.
For the pre-retirement years of 55-59, the gender gap is 33% and in the peak earning years of 45-49 the gender gap is 35%.
As of December 2020, 55% of those collecting the full pension were women.
"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," says Alison Kitchen, chair of KPMG Australia.
KPMG proposes rebating, for a limited period, the 15% superannuation contributions tax that is charged on all concessional contributions, which would be deposited into the primary caregiver's super account.
This would theoretically allow the carer to catch up on half of the mandatory concessional contributions that would have been made had the carer remained in full-time work.
The rebate would apply for up to the first five years of work (employed or self-employed) that follow the primary carer period.
"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'," says Kitchen.
"Without them, women will continue to miss out on vital income during childbearing years that can significantly impact on them later, especially in retirement."
KPMG believes the measure would particularly help those on lower incomes.
"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," says Linda Elkins, KPMG partner and national sector leader in asset and wealth management.
"We believe a more targeted approach will prove more successful, and so our proposal is based on strict eligibility."
To understand how it would work, KPMG provides the hypothetical example of Lee.
Lee had full-time income in the full year prior to a primary carer period of $50,000 per annum, with superannuation contributions of $5000 and super contribution tax of $750.
Lee did not work at all during the one year off work, but had she continued to work full time during this year, she would reasonably expect to have super contributions of $5000.
After the primary carer period she returns to work full time and earns $50,000 per annum. Lee's aggregate super contribution tax rebate is therefore $5000 x 1 year x 50% = $2500.
This is made up of a payment of $750 annually for three years following the primary carer period, and a final payment of $250 in the fourth year, for a total of $2500.
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