The policy from GROW Super will apply to both men and women, provided they are the primary carer and, according to the fund, is aimed at addressing the gap of nearly 40 per cent between male and female savers’ balances upon retirement.
GROW Super argued that the non-payment of superannuation during parental leave is a critical factor, in addition to the gender wage gap.
For example, a woman who had a child at 32 and another at 34 and who takes a year of maternity leave following the birth of each child could end up $72,000 worse-off in retirement.
The standard maternity leave policy pays super for three months, meaning this woman would face 18 months without super payments and, if she’s earning $80,000, the $11,400 in superannuation. By retirement, that figure would grow significantly, thanks to compound interest.
At the same time, this woman is likely paying fees, despite not making any contributions.
“What we do now compounds over time and makes a staggering difference to quality of life in our later years. Age old advice still rings true; small actions now can make a big difference in the future,” GROW Super’s Madeleine Gasparinatos said.
“People seem disengaged with their super, it’s so far into the future they rarely think about it or don’t make it a priority. This can have devastating outcomes on quality of life.”
According to the Association of Super Funds of Australia (ASFA), the average woman will retire with $157,000, which will be exhausted after six years of retirement, based on the minimum wage.
GROW Super said this is a challenge that will only grow in prominence as Australia’s population ages.
It said it hopes other funds will follow its lead in providing fee-free parental leave.
The initiative follows the Productivity Commission’s judgment of the super sector as an “unlucky lottery” for savers, thanks to high fees and anaemic competition.
It also comes as the government moves to prevent trustees from charging fees greater than 3 per cent on funds with balances of less than $6,000, as outlined in the 2018-19 budget.
ASFA in May called for superannuation to be paid in all instances where income is replaced, like paid parental leave and workers’ compensation.
However, the government chose to allow low-balance savers to make catch-up contributions. The scheme, brought in earlier this month, allows savers with less than $500,000 in super to access and use any unused portions of their concessional contributions caps for five years.
“The Turnbull government’s superannuation taxation reforms have given individuals, especially women, more control over their superannuation savings and will support their economic security in retirement,” Minister for Financial Services and Women Kelly O’Dwyer said.
“This important measure will make it easier for those with interrupted work patterns to save for retirement and benefit from the tax concessions commensurate with individuals who have a regular income.”