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Compulsory Superannuation in Australia, Disparity in Superannuation between Women and Males - Assignment Example

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The paper “Compulsory Superannuation in Australia, Disparity in Superannuation between Women and Males” is an intriguing example of an assignment on finance & accounting. Superannuation in Australia is the arrangements that people make in Australia to save funds for their retirement…
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Student Name: Tutor: Title: Question three Course: Question three a) Evolution of compulsory superannuation in Australia and current issues Superannuation in Australia is the arrangements that people make in Australia to save funds for their retirement. Over the last one hundred years the retirement income system in Australia evolved from performing the function of poverty alleviation, to whereby a integration of private and public provisions attain a broad variety of retirement income needs. The old system of superannuation that existed before the introduction of superannuation initiatives that were compulsory in the early 1990s and late 1980s was largely described benefit system that was confined to employees in the public sector and employees in the private sector at the managerial level. The system was unfunded and retirement benefits were solved on the basis of emerging cost. The percentage of employees served by the old system scheme was very low particularly for part-time workers. By the year 1988, only fifty-eight percent of full time employers, 2 percent of persons not employed, and 19 percent of part-time workers were covered by the superannuation scheme. Currently superannuation in Australia is worth about $1.5 trillion, which is equivalent of the national GDP of the country; and it is expected to rise to about 6 trillion by the year 2037. Superannuation is an important part of the country’s financial system since it provides capital for financial markets, boosting national savings, and ensuring the presence of an egg nest for many citizens in Australia. Superannuation has evolved from just being a financial asset to a national institution. Superannuation is set to rise from 9% to 12% in the next period of ten years. The reason why Australia government increase superannuation from 9% to 12% is for inflation aspect, they afraid that when people retirement, they cannot get desire amount of superannuation if consider inflation factor. There are several current issues that are affecting superannuation in Australia. The volatility of the economy of the world is likely to pose a challenge. There is weak growth in Europe, weakness in global credit and financial market and existing uncertainties such as United States looming fiscal cliff is a challenge on the global confidence. Developments in United States and Europe are impacting negatively on what are considerately more uncertain growth paths witnessed in emerging economies like India and China. There is a structural change in Australia is as a result of the rise of Asia. The structural change towards services has to be cleverly managed so as not to affect negatively on the social welfare of the nation. There overall declining in participation rate owing to an ageing population. There will be a period of slow income growth as compared in the last decades. Commitment from employees and businesses is required and the government has to make sure incentives and enablers create the right environment to foster innovation. Fiscal sustainability will be a challenge if the government does not act quickly. b) Factors that impact on disparity in superannuation between women that their male peers. Female life expectancy in 1911 was fifty nine years which was four years more as compared to men. At this time, 83% of the women did not have a profession and depended on their families. The 17% that remained were mostly engaged in domestic professions and services like dress-making and textile (ABS 2011). Commonwealth age pension was introduced in 1909 in Australia. This compelled by the fact that women lived longer and therefore they suffered when their husbands died. Women would have less superannuation as compared to their male counterparts. Women are mostly employed in part-time and casual employment. They represent about 71.2% of all registered part-time employees. Close to 45.2% of women employed worked part-time. This directly impact on the earnings of women; their chances of working overtime to accrue more superannuation is small. The attitude of women towards long run saving plans is affected when they have insecure and low income. On average women life expectancy currently stands at 83 years while that of men is 78 years. The well being of women economically may be compromised and essence of financial education increased (Higgins & Roberts, 2011). The government has tried to alleviate this gender disparity in superannuation through removal of work tests that spelt the number of hours one had to one per week to qualify to contribute. Super-splitting allows superannuation to be divided into two following a court order or on mutual agreement in case of a divorce. Women have less superannuation of owing to various factors that affect them. In the workplace, there is sexual discrimination where women are paid less compared to men when they do the same job. The physiology nature of women makes them to be disadvantaged. Women will be faced with unpaid period where they take time off to bring up a family. When women get married the get pregnant and raise children. This time lost in caring for the family is not compensated in superannuation. Women sometime the labor market to be full time housewives and there is no increment in their superannuation. The government has do enough to ensure that women superannuation go up as compared to the men. Equal job opportunity and increase access to education will enable women to catch up. The government is not doing enough to do away with the gap between the male and female superannuation. The government should help the women increase their superannuation instead of looking for ways that will help them split superannuation with men in case of a divorce (Card et al, 2010). The government has to deal with the root course of the disparity instead of trying to deal with the aftermath. The government has to pass gender discrimination laws for income. Women have to get equal pay with men for the same job. Women have to be encouraged to pursue professional lives without quitting early a fact that will affect their superannuation during retirement. A female physiology Assistance Fund can be set up by the government to cater for women and contribute towards their superannuation during the time when they are pregnant, and when they raise families. c) Determining how much they need in retirement and improving the super account It is a challenge that many clients face when it comes to determining how much is needed during retirement. It is difficult to tell how much one will need in retirement if a person does not know how much it costs him to live now. When trying to budget for retirement, clients have to go for the maximum life expectancy. Women can live up to 90 years while men live up to 86years. After retiring at the age of sixty, one needs to fund his expenses for at least 26 to 30 years (Basu & Drew, 2009). It is important to analysis one’s lifestyle and medical history in relation to their family history. If someone plans to retire at the age of sixty, he will need fifteen times the amount he has calculated for his annual after-tax retirement expenses. If $60,000 is estimated then $900,000 is needed. If someone plans to leave a legacy to his children, then the cost has to be added to this amount. Understanding the actual needs is important when calculating the amount needed in retirement. A replacement rate can also be used where a person spending after and before retirement is compared. For instance, a 75% replacement rate means that a person would spend $75 in retirement for every $100 spent prior to retirement. The rate of inflation per annum has to be factored in. Assume single person who retirement at 65 and live up to 85, if require a modest life, 20000 dollars for annual living costs and 400000 is needed in total, if require a comfortable life, 40000 dollars for annual living cost and 800000 is needed in total. One can manage 65-70% of his current income if he does not have debts such as home loan, repay bill. One has to calculate the addition fee when at retirement such as travel, relocate, medical expenses, and health insurance. One has Account for inflation. As time goes by, the value of money goes down, the purchasing power goes down, if $40000 is required for annual fee, $800000 is not enough, after taking inflation into consideration; every year’s superannuation need to bring back to present date. Finally one has to Estimate how long he will take to retire. It is essential to Plan children if some money has to be left for children; then factor in how much is needed, after that subtract total superannuation. One has to apply tax effective contribution strategies by contributing more of the income. Overall balance of the super account can be improved through saving more in the last years towards retirement. Last minute rush is not good when one is in his sixties. Legislative approach can be used to impose a sanction using an excess contribution tax regime. Diversification of investments is important in increasing the income of the client. The investments have to be right for a person. Employer-selected default funds can be detrimental to workers who are older as compared to fresh graduates (Card et al, 2010). One has to ensure that he maintains a competitive fee structure in order to achieve super balance that is healthy. High fees can have adverse effect on the super balance. One has to increase his income and percentage investment in superannuation. Besides one can choose low management fee for the superfund and also delay his retirement in order to increase superannuation balance. References ABS (Australian Bureau Statistics), 2011, Australian Demographic Statistics, Cat. No 3101.0, Canberra: AGPS. Card, D., Mas, A., Moretti, E., & Saez, E., 2010, Inequality at Work: The Effect of Peer Salaries on Job Satisfaction, National Bureau of Economic Research Working Paper Series, No. 16396. Higgins, T. & Roberts, S., 2011, Variability in expenditure preferences among elderly Australians, presented at the UNSW Superannuation Colloquium, Sydney, July 2011. Basu, A. & Drew, M.E., 2009, Portfolio Size Effect in Retirement Accounts: What Does It Imply for Lifecycle Asset Allocation Funds? Journal of Portfolio Management, 35:3, 61-72. Read More
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