Time to compensate women for time out of workforce
Latest research showing New Zealand women could be up to $318,000 poorer than their male counterparts at retirement makes difficult reading.
For so many women my own age, that horse has bolted. Nothing can be done about it now apart from making haste and power-saving through to retirement to lessen the impact.
Looking back, I wish the women before me had foreseen our generation’s fate, but their predicament was worse.
Am I positive for the future version of myself? A little, but not strongly so.
There are things we can do at a relationship level to rebalance financial power, but ultimately women should be compensated by receiving tax-credits back into their KiwiSaver accounts, to materially change the retirement penalty.
How do we change the path?
For younger women, their destiny is on the same trajectory as ours. I can’t fudge it and tell you these costs won’t exist for you. Retirement savings schemes such as KiwiSaver are linked to individual employment. Government policy hasn’t got creative and there’s no plan to deconstruct this link for those taking career breaks.
As the 9% gender pay gap closes (and I’m sure it will grind slowly inwards over time), the gender pension-gap will also narrow. But it will never close for families. Those who want to raise children, work part-time or take on caring roles for ageing parents will always be directly penalised with a shrivelled KiwiSaver account.
Does it matter?
Whether it matters or not is an interesting question. Legally, KiwiSaver accounts are relationship property – a shared asset. Apparently only one in four people understand this fact according to a Westpac survey carried out five years ago and I doubt that statistic has altered. Savings made prior to a relationship will remain your own, as well as any growth on these amounts.
You can argue it doesn’t matter if a couple have one healthy fund and one shrivelled fund. They’ve arranged their money-earning capacity as efficiently as possible between them and their savings mirror this.
But it really does matter in two key ways:
1. It’s a penalty on family life. Those who want children and want to be present in their lives (or take on care of the elderly) pay a price. They’ve created the next generation of economic growth and taxpayers or reduced the cost of ageing to the country.
2. It creates financial under-confidence and feelings of loss of power in a relationship. The size of a KiwiSaver account is a direct and tangible indicator that two people are not equal. These traits are then passed to the next generation reinforcing gender inequality and pay-gaps.
Changing this cycle starts at everyone’s front door, in our homes and the way we treat each other financially.
How could the next generation of women change things?
There’s a very simple hack. You ask your partner to stop putting so much into their own KiwiSaver account and redirect some of it to yours (making sure they don’t drop their own contribution below 3% given their employer will match it). KiwiSaver has no tax advantages (contributions are from net income not gross) so there is no reason for all the savings to be in their name.
The greater the pension gap with your partner becomes, the more your financial confidence can fall. By age 50 you’ll be a boiled frog – it’s too late and too ingrained to change the water temperature and rebalance the savings pots.
That might create screams of pain, because some people are quite protective of their retirement savings. The size of their fund can be a symbol of how hard they’ve worked and something to be proud of.
But although it might sit like that in their head, legally it belongs to both of you.
Financially equalising a relationship breeds respect and creates an engaged equal voice in retirement planning and spending. As stoic as some women may seem, being undervalued financially eats away.
There are a few key points in time for a couple to apply a hand brake to their in-house pension gap:
1. The decision to start a family: mortgage size and career breaks are discussed, so it wouldn’t be unreasonable to start splitting KiwiSaver contributions between both accounts at this point. Research has shown even a one-year career break can open up a $15,000 gap.
2. Working part-time to keep family dynamics smooth: often the lower earner will do this and it’s not unreasonable to discuss rearranging contributions in line with the career progression they have forgone for the family.
3. Taking on a caring role for an elderly family member: a lower earner will often sacrifice their job to look after parents or in-laws. These are very practical decisions, but again, KiwiSaver contributions could be rearranged.
How could government policy help
The things I’ve talked about above are aesthetic – a simple mental shift in the way couples recognise the value of their role in a relationship. There’s no pretense of this changing overall family finances or legal rights. It’s merely a symbol of family values and stops the cycle of inequality being reinforced.
The real changes need to come at government level. The right to a family life shouldn’t come with a pension penalty.
Women pay taxes during their working lives and so do their partners. Rebating some of these back into their KiwiSaver accounts during the years they have children in the education system, is one method of levelling up both the gender pay gap and the gender pension gap.
Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com. Opinions are a personal view and general in nature. They are not a recommendation for any individual to buy or sell a financial product. Readers should always seek specific independent financial advice appropriate to their own circumstances.