Why single women are more likely to retire poor

The participation of women in the labour force has increased substantially over the last few decades, but women still retire with around half as much superannuation as men.

Women are still more likely than men to have interrupted career patterns and work casually or part-time. Women have longer life expectancies than men and generally retire younger, so they spend longer in retirement, on average, than men do.

The three main causes of the gap in superannuation are:

1. The gender wage gap — the Workplace Gender Equality Agency estimates the difference between women’s and men’s average weekly full-time equivalent earnings, as a percentage of men’s earnings is currently 18%.

2. Time out of paid employment — to care for children or other family members.

3. Working hours — women are more likely than men to work part-time.

The combined result of these factors is a gender difference in superannuation savings that compounds over time.

Take, for example, a man and a woman, both aged 30 and working full-time. The man earns $73,000 per year before tax and has a superannuation balance of $20,000. The woman earns $60,000 per year before tax and, because of the wage difference, has a superannuation balance of $15,000. If they both continue working full-time, with no time out of the labour force, their superannuation balance at age 65 will be $751,000 and $611,000 respectively.

Small break, big impact

The estimated effect of the gender pay gap, career breaks and part-time work on superannuation savings.Note: These scenarios assume that wages increase at a real rate of 1.5% per annum and superannuation earnings are 5% per annum after inflation, individuals do not make any additional superannuation contributions and employer contributions are 9.5% of gross wages until 2021, then increase by 0.5% per year, to reach 12% by 2025.

If the woman has a baby at age 31 and takes one year out of the labour force without pay (and without employer superannuation contributions), before returning to full-time work, her superannuation balance at age 65 will drop to $584,000. If she returns to work 3 days per week at 60% of her full-time salary from then on, her superannuation balance at age 65 would drop to $384,000 after a one-year career break, or $325,000 after a five-year career break.

While compulsory employer superannuation contributions are based on income, the gender gap in superannuation savings will continue. There is no single clear solution that will overcome this issue. However, this doesn’t necessarily mean women will be worse off in retirement. Data from the HILDA Survey show that most Australians approaching retirement are living with a spouse or partner. For women in couple households, the overall savings of the couple, combined with a full or part age pension are generally enough to maintain a reasonable standard of living. Where difficulties often arise for women is when a relationship ends, or their partner dies.

Analysis by the Australian Institute of Family Studies shows that, based on household disposable incomes in 2012–13, most partnered retirees had a reasonable standard of living. The age pension is not far short of the budget required for a modest standard of living in retirement, as defined by the Association of Superannuation Funds of Australia (ASFA). Still, compared to partnered retirees, it is much more common for single retirees to rely almost entirely on the age pension (see below).

Living standards of single and partnered retirees 2012-13, by age, before housing expenses.Source: HILDA Survey, Release 13.0

The ASFA retirement standards assume that retirees own their home outright, and have very little in the way of housing expenses. While this is the case for most retirees, single retirees were less likely to own their home. Among single female retirees aged 65 to 69, 30% were paying rent and 8% were paying off a mortgage.

When housing expenses were taken into consideration, the percentage of retirees who were able to afford a modest lifestyle was reduced considerably, particularly among single women. Around 65% of single retired women aged 65 to 79 were not able to afford at least a modest lifestyle. Single men fared slightly better, with nearly 50% of single male retirees aged 65 to 69, and around 60% of those aged 70 or older not able to afford a modest standard of living (see below).

Couples do better

Living standards of single and partnered retirees 2012-13, by age, after housing expenses.Source: HILDA Survey, Release 13.0

At present, single women are the least likely to be able to afford even a modest lifestyle in retirement.

Changes to superannuation policy to address the gender gap in superannuation savings, along with policies that encourage the increased labour force participation of women, may assist retirees in decades to come. But for the current group of retirees, policies targeting assistance to those in genuine financial hardship, particularly those who do not own their own home, will be more effective for improving living standards.

Diana Warren does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.