With unemployment rising due to COVID-19, women’s financial health is at greater risk. Find out ways to take control and better protect your financial future.
The information in this article was last updated on Friday 24th July 2020.
In the past, economic downturns have helped advance women’s financial equality1 . During World War II, women were encouraged to enter the paid workforce while men went off to war, giving many the first taste of independence. And during the downturn of the 1980s, women once again stepped into the role of income earners and female workers increased by 6.2% between 1981 and 19892.
Unfortunately, early indicators suggest that the COVID-19 coronavirus appears not to be following suit3. As women take on greater responsibilities for caring at home – whether that be looking after elderly relatives or home-schooling children, their jobs will also be disproportionately affected by cuts and lay-offs, according to a recent report from the United Nations Policy Brief: The Impact of COVID-19 on Women 9 April 20204.
So far, in Australia, the industries hardest hit have been the family-friendly, flexible jobs traditionally fulfilled by women. Retail, hospitality, events and food service businesses have stood staff down, asked them to take unpaid leave or work reduced hours. Women have suffered the biggest pay cuts in 11 of the 19 sectors of the economy and job losses across 14 of 19 sectors5.
The retirement income gap
With a loss in income comes a loss in superannuation contributions, usually made by an employer directly into their employee’s fund. If a portion of super is also accessed early through the government’s new super early access scheme, it has the potential to worsen the wealth and super disparity of women in the longer term.
Current data shows that women already retire with 31% less in their retirement savings than men6. This is due to several factors including women taking time out of the workforce to raise children or look after parents, earning less than men, and events like divorce or loss of a partner potentially leaving women in a less than ideal financial position. Additionally, women tend to live longer than men (80.7 years for men and 84.9 years for women)7, so retirement savings also need to last longer. Now, with unemployment rising, the super gap may likely widen.
While there will always be factors outside a person’s control, improving overall financial literacy (which is having the awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions) can help women take charge of their money and lessen the impact of COVID-19 on their financial future. Here are some things they can consider.
1. Know how much is needed
Be better prepared by understanding how much is needed for retirement. There’s a difference between a modest and comfortable lifestyle. Planning for the future starts with knowing where you stand now. The MoneySmart’s retirement planner calculator is a useful tool that may help.
2. Use government assistance where possible
There’s a range of support packages, payments and subsidies available including the JobKeeper payment and coronavirus supplement. Eligibility varies, and employers have to be registered for employees to receive the benefits of the JobKeeper payment. More information can be found via the Centrelink website.
3. Low income super tax offset (LISTO)
Earning less than usual could mean eligibility for LISTO - a government superannuation payment of up to $500 per year to help low income earners save for retirement. For people who have earned less than $37,0008 it will happen automatically when they lodge their tax return, providing the super fund has a copy of the super member’s tax file number. Additionally, low to middle income earners could also be eligible for an extra $500 from the government via super co-contribution, providing they meet the criteria, including making an after-tax contribution.
4. Spouse super contributions
This benefit is available where one spouse (husband, wife, de facto or same-sex partner) contributes an amount of money into their partner’s super. Providing the receiving partner is a low-middle income earner, or unemployed, the contributing spouse may be eligible for a tax offset. You can find out more on our spouse super contributions page.
5. Access super early
The government has introduced an early super access scheme which means eligible people can access up to $10,000 of their super between 20 April and 30 June 2020, and up to a further $10,000 from 1 July until 31 December 2020.
It’s important to understand the impact of accessing super early. This includes considering any compounding effects of withdrawing an amount now from your super and any impact that could have in the long-term.
When considering whether to access super early, weigh up the pros and cons or think about speaking to a financial adviser, before making any decision.
6. Making additional super payments
One way to help reduce the super gap (the short fall that can arise from periods of unexpected unemployment, parental leave or unpaid leave to care for family members) is to make additional payments to super during times of employment. If budgets allow, even small salary sacrifice contributions, as they are known, could go towards making a difference over the long term. There are caps to how much you can contribute to super each year and various tax rules apply. Until recently, your cap was reset every year – so if you didn’t put the full amount into super you lost your entitlement to any unused amount. But if you’re eligible, you can now carry forward any unused amount for up to five years. You can find the tax rules via the ATO website.
It will be a while before the full effects of COVID-19 on women’s finances are known. However, by improving financial literacy and equipping themselves with knowledge, they can make informed financial decisions over the areas they can control, giving them a better chance of being prepared for the future.
1,3,5,6. The Financy Women’s Index, March quarter 2020
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