Australia is renowned for its beautiful beaches, expanding landscapes and its superannuation scheme. For those who don’t know, Australia's superannuation scheme requires all employers to automatically withhold 10% (soon to be higher) of an employee’s salary. This withheld amount is placed into a superfund of the employees’ choice and cannot be accessed until retirement age (currently 65). There are multiple incentives for employees to maximise their superannuation contributions including tax benefits and matching contributions.
Recent research has exposed the shockingly large gap between women and men’s superannuation balances once they reach retirement. While the gender wage gap plays a part, other influences such as financial literacy and risk tolerance can be even more impactful.
Studies have proven that men are more likely to take an interest in their superfund at an earlier age. This provides two main advantages to building your superfund wealth. Firstly, knowing the tax benefits and government incentives, allows a taxpayer to maximise the value of their account. For example, contributions to your super fund can be tax deductible up to a threshold. If an employee knows this threshold, when to contribute, and the forms required to be eligible for a tax deduction, they can greatly improve their financial position without having to earn more.
Secondly, the earlier a taxpayer takes an interest in their superfund, the better they can increase their returns for a longer period. A common pitfall is for taxpayers to leave their superfund in balanced or even conservative options (the default option by superfunds and employers), resulting in lower returns for a longer period. Compare this to someone who acts earlier in life and adapts their investment option to their situation à High risk while they are young, and lower risk as they near retirement.
You may think that updating your superfund option to the fund that is most applicable to you, may only have a small impact. The below table debunks this thought.
Below compare two people, one who takes action to change their superfund at the start of their career (1990), and one that does not take action. These returns rates are true of one of the largest superannuation funds in Australia.
As for the superfund gap, more needs to be done to ensure all Australians are educated in what they should be doing with their superfunds. While many are quick to dismiss the topic, claiming it is too complex or doubt their own ability to understand the system, it is imperative that one take an interest and attempt to understand their situation. More work needs to be on this topic as it continues to be a slow burning but pressing issue.
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