Abolishing the $450 threshold to boost women’s super by $11,000

Abolishing the $450 threshold to boost women’s super by $11,000

Women's super set to get a significant boost with the scrapping of the $450 threshold in the Budget.

Women could see as much as an $11,000 boost to their superannuation thanks to the abolishment of the $450 threshold which is set to be detailed in tonight’s Federal Budget.

According to News.com.au the threshold will be scrapped in the budget, in what’s considered a modest change that will ensure more workers are paid super when they earn even small amounts with a single employer.

The announcement is now the second major policy change directed at women and is aimed squarely at improving their economic security and closing financial disadvantages.

Last week the government also announced a childcare reforms to improve accessibility and affordability for many more Australian families.

The focus on women comes as the government tries to distance itself from months of negative publicity amid allegations of sexual abuse and crimes against women by government minister and staff. The government is also under pressure for not listening to women on gender equality issues more broadly, particularly the gendered economic fallout of the pandemic.

Under the current superannuation arrangements, if a person earns less than $450 per month from the one employer, they are not entitled to receive the superannuation guarantee.

This is a rule that mostly affects younger workers and women with 68% part time workers being female.

Many superannuation industry bodies and financial planners have long campaigned for the $450 rule to be abolished, which would mean that regardless of how much money you earned with any employer, you should also be entitled to employer paid superannuation.

Colonial First State’s Kelly Power has crunched the numbers for us on what this might look like for women – who are more likely than men to be affected by the $450 rule due to more working part-time and casually and also earning lower wages on average.

Here’s what a rule change would mean to a 30 year old woman with $50,000 in super who becomes a stay at home mum after having her first child.

Under the $450 threshold currently

  • She becomes stay at home mum and drops to part-time employment earning $449 per month with NO super guarantee entitlement
  • At the age of 40, her super is worth $57,561

If threshold is dropped to zero in the Budget:

  • She becomes stay at home mum and drops to part-time employment earning $449 per month but gets FULL super guarantee
  • By age 40, her super is worth $64,485.

Impact of changes explained:

As a result of a rule change, this woman would have an extra $6,924 in today’s dollars after 10 years at age 40.

However, this difference will continue to grow over time due to compounding investment returns and could increase to $11,700 in today’s dollars by retirement at age 67.

This difference relates to the $450 threshold change and does not include any additional contributions that a person may make or receive after returning to full time employment at age 40.

“The gender gap in the Australian superannuation system is a real issue that sees women financially disadvantaged,” says Ms Power.

”The Coronavirus has pushed us back even further, creating greater urgency for solutions to the retirement realities challenging Australians, particularly women.”

This piece was first published by Financy.

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