The mother of all super shortfalls

Last week's budget was a bit of aho-hum affair on many levels related to superannuation, because most of the changes to the system had been announced back in April. The transfer of the Baby Bonus into an extra (reduced) payment for families eligible for Family Tax Benefit Part A, has drawn the light fairly and squarely on the costs of bearing and raising children. The recent debate about the opposition's Paid Parental Scheme versus the government's less-generous scheme has added fuel to the fire.

And backing all this up is the increasing female participation rate in the workforce. Over the past 10 years alone this has increased a little more than four percentage points from to 65.2 per cent.

In the older age group this increase is even more pronounced. Since 2002-2003 the female participation rate in the 65- to 74-year age range more than doubled, from 6 per cent to 13 per cent.

Since it was introduced, new parents have had to choose between the Paid Parental Leave Scheme or the Baby Bonus. The first is paid over 18 weeks at the national minimum wage of $606.50, a total payment of $10,917 or twice the amount of the original Baby Bonus.

It is a taxable payment either paid directly by Centrelink to the recipient or paid by Centrelink to the employer and then to the recipient. But the government scheme does not include payment of the superannuation guarantee. Senior partner at Mercer David Knox says if the underlying principals of the superannuation system are understood, this is an inconstancy that needs addressing.

"If you step back one step, what superannuation is really all about is trying to spread one's lifetime income ... through your whole life," he says.

"That principal applies whether it comes from an employer, or paid parental leave, or worker's compensation." The statistics around female average super balances and male average balances at retirement are even more stark and much greater than the difference between wages, due to the time out of the workforce many women have: a woman at age 65 will have an average balance of $112,000 compared with a man's average balance of $190,000, according to the Australian Bureau of Statistics. The increase in the participation rate for older women may, in part, be due to the necessity of working longer as retirement balances are so paltry.

The government made no mention of introducing the superannuation guarantee to its paid parental scheme, but the good news is if the opposition is elected its rather more attractive scheme - 26 weeks at replacement wage or average weekly wage, whichever is higher, up to a cap of $150,000 - does include the 9 per cent superannuation guarantee. Whether this scheme will be introduced is causing much debate in the Coalition, as it will be paid for by a 1.5 per cent levy on larger businesses.

The lesson for anyone considering having children is to not forget superannuation. As costs increase with a growing family, it's easy to think that a dollar spent now is wiser than a dollar saved. But new parents need to remember that a dollar saved now could be more than 10 times that much at retirement, with the benefit of compound interest and earnings rates. Super is mandatory, not optional, and it should also be mandatory in paid parental or income replacement schemes. Anything else is not true to its intent.

David Potts is on leave