It’s a truth universally acknowledged that the superannuation system is rigged against women.
OK, not everyone puts it exactly like that. But it’s true there’s a disparity – the 2017 Household, Income and Labour Dynamics in Australia Survey found women retired with an average super balance of $230,907 and men with about twice this amount – and it’s generally accepted that the main reasons are structural.
We designed our system for retirement savings to be based on workforce participation and income. This has advantages but drawbacks too, chiefly that it perpetuates and amplifies the financial inequalities during our working lives.
Women take more career breaks to be caregivers to children or other relatives – work that has social and economic value but is not paid. Women are also more likely to work part-time – for the same reasons – and more likely to work in lower paid occupations. There’s also plenty of evidence women on average are still paid less to do the same job as men, though that is changing.
Some women beat the odds to achieve a decent retirement balance – working in a well-paying job, making additional voluntary contributions, or having a spouse to top it up. But the existence of outliers doesn’t mean the system is a level playing field.
It makes it all the more alarming to hear that young women are failing to do something simple that is wholly within their control and costs nothing, yet could boost their retirement balance by hundreds of thousands of dollars.
Almost half of young women, aged 18 to 29, do not know their superannuation risk profile, according to the latest MLC Wealth Sentiment Survey. That is, whether their super is invested in a conservative, moderate, growth or aggressive option.
The survey, which had more than 2000 respondents, found almost one in four Australians, or 23 per cent, don’t know their super risk profile, but men are much more likely to be across this detail across all age groups.
About 27 per cent of men aged 18 to 29 said they didn’t know their super risk profile – compared with 45 per cent of women the same age.
About 27 per cent of women aged 30 to 49 said they didn’t know their risk profile. Only one in seven men in the same age group were unaware.
For the 50-plus age group most people knew their risk profile, but men were still slightly more likely to know than women.
MLC general manager of customer experience Lara Bourguignon says the risk profile is one of the key factors that will determine how much money you have when you retire, but it’s often overlooked.
“As an example of the difference it could make, a woman aged 25 on $80,000 a year in a conservative risk profile until she’s 70 could improve her super balance by around $294,000 if she adjusted her profile according to her circumstances and life stage,” she says.
This is based on a woman working from 25 to 70, with no pay rises, with an initial superannuation balance of $20,000, moving her risk profile from aggressive to growth at age 40, to balanced at age 55 and then to conservative growth at age 65.
With superannuation and, indeed, any investment there is a relationship between risk and return: the higher the risk, the higher the expected returns. It’s important to understand that risk in the context of a superannuation fund is still reasonably safe – even in a so-called “aggressive” investment option, big super funds are highly regulated and not in the business of rampant speculation.
Young people can afford to take more risk with their superannuation because they will have decades to recover from any losses. Personal circumstances will vary but many experts suggest staying in a growth portfolio up to your early 40s and lowering the risk to reduce volatility as you head into middle age.
You get the best out of superannuation if you can make additional contributions and choose high-earning investment options early in life, because the magic of compound growth means you earn returns on your returns.
One surprising sign of hope is that the survey found for those people who do know their risk profile, young women were just as likely to choose a growth or aggressive portfolio than men the same age. However, men aged 30 to 49 were far more bullish than women the same age.
Ideally, everyone should make a conscious choice and revise it regularly.
Caitlin Fitzsimmons is the editor of Money. Facebook: @caitlinfitzsimmons.
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