Superannuation tax rebates for time off work to raise children could lift women’s balances, KPMG report shows

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Women and men across all income levels who take time off work to raise children should get a superannuation tax rebate to ensure they don’t miss out on making extra contributions to their retirement, according to KPMG.

The federal government could also consider making top-up contributions (rather than co-contributions) into the superannuation accounts of primary carers who have a child of pre-school age to help lower-income women make higher contributions to their super.

These are just some of the options discussed in a new report by KPMG, which is the eighth in series aimed at lifting women’s workforce participation and narrowing gender pay gaps.

The superannuation gender gap continues to see women retire with far less than men — the median superannuation balance for men aged 60-64 years is $204,107 whereas for women in the same age group it is $146,900, a gap of 28 per cent.

“We shouldn’t have to apologise for making sure that the same opportunities to access concessions are available to high-performing women and high-earning women as they are to higher-earning men,” says KPMG chairman Alison Kitchen.

“It is important not just to focus on disadvantaged women, but to also make sure that we’re levelling the playing field.”

The latest report, The Gender Superannuation Gap: Addressing the Options, suggests that the primary carer (usually a woman) should receive a rebate on the 15 per cent Superannuation Contributions Tax paid on contributions made for up to five years following the period out of the workforce.

That basically means that the primary carer would be compensated for superannuation lost while at home caring for children.

Under the KPMG proposal, which is yet to be costed, the primary carer would be able to catch up to 50 per cent of the mandatory concessional contributions that might reasonably have been made, had she (or he) not taken time out of the workforce.

The individual would claim the rebate through their personal income tax return. The total $500,000 fund balance limit to be eligible for “catch up” concessional contributions would also apply.

But the five-year limit would be able to be broken if the primary carer took one year off, returned to work and then took time off again.

The latest call by KPMG follows a number of other bold proposals put to the federal government and Labor opposition including offering Australians 26 weeks paid parental leave and lifting the childcare subsidies.

According to KPMG modelling, halving the workforce participation gap between men and women could increase economic growth by $60 billion over 20 years and deliver a $140 billion lift in living standards by 2038.

How someone on $50,000 per year could claim the proposed tax rebate

To demonstrate how the proposed super tax rebate works, KPMG gives the hypothetical example of Lee.

She had full-time income of $50,000 annually in the full year before being a primary carer.

During this year, her superannuation contributions were $5,000 and Super Contributions Tax was $750.

Lee did not work at all during her one-year being the primary carer.

Had she continued to work full time during this year, it is reasonable to expect she would have had superannuation contributions of $5,000.

After the primary carer period, she returns to work full-time and earns $50,000 per annum.

Lee’s aggregate Super Contributions Tax rebate is $5,000 x 1 year x 50 percent = $2,500.

This is made up of a payment of $750 for each of the three years following the PCP, and a final payment of $250 in the fourth year, making a total of $2,500.

This is ‘not welfare for women’

For the pre-retirement years of 55-59, the gender gap is 33 per cent and in the peak earning years of 45-49 the gender gap is 35 per cent.

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

“We don’t see this as … welfare for women,” Ms Kitchen said.

“We see this as catch-up opportunities. To access the concessions that are rightly available to all workers in Australian society.

“Women face economic disadvantage through their working lives, they then leave employment with a lower super balance.

“And in fact, they need a higher super balance, because on average, women live longer than men, and therefore are more likely to need ongoing support.”

Options to support women in lower-income jobs

The report also argues there is a need to support women in lower-income jobs.

“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,” said KPMG partner Linda Elkins.

KPMG suggests providing “top-up” superannuation contributions for primary carers (not on a co-contribution basis).

The Commonwealth could consider making top-up contributions (rather than co-contributions) into the superannuation accounts of primary carers who have a child of pre-school age.

This could, for example, be directed to accounts of those accessing the Paid Parental Leave scheme.

KPMG suggests that the impact of a $500 or $1,000 annual top-up be modelled by the Commonwealth Treasury.

What if government tackles concessional tax treatment of super?

But there’s much pressure on the federal government to scale back tax concessions, not make them more generous.

The government’s recent Retirement Income Review noted that higher-income earners received more superannuation tax concessions than lower- and middle-income earners, the largest tax savings as a percentage of superannuation contributions over their lifetime, and the largest tax concessions on superannuation earnings.

Ms Elkins said that if off the back of the retirement income review, the government may make changes to the concessional tax treatment of superannuation, but that was a separate issue to the super gender gap.

“The issue we’re dealing with now is within the current settings, [where] women who or people who have breaks from not working get less access to those concessions,” she said.

KPMG provides other options that could be considered instead of the tax rebate.

A second option is to create a “Primary Carer Supplementary Concessional Cap”.

Currently, an individual can have concessional contributions of up to a cap of $27,500 per annum.

A taxpayer with a total superannuation balance of less than $500,000 on June 30 of the previous financial year can apply any unused cap for up to five subsequent years.

Under KPMG’s proposal, primary carers would benefit from having additional “catch up” capacity that is not subject to the five-year time limit.

Their earnings may not increase sufficiently in the five years following the primary career period to enable them to make the additional contributions before the catch-up period expires.

Another option is removing the five-year limit on using concessional contribution caps relating to the primary carer period.

Primary carers, usually the mother, might be out of the workforce or working part-time for extended periods.

KPMG suggests that the expiry after five years of unused concessional superannuation contributions capacity relating to periods spent as a primary carer disadvantages these individuals.

“If people have more than one child, the period of time in which they’re not got the capacity to make these contributions can be longer than five years,” says Ms Elkins.

KPMG’s report suggests removing this five-year limit in respect of unused concessional contributions capacity from the primary carer period for eligible individuals would allow them more flexibility to top up their balances and make up for gaps in work.

By business reporter Nassim Khadem (Original ABC Article)