Taxpayer could pay stay-at-home mums' KiwiSaver contributions

Monday, 23 September 2019

Precious bundles come at a price, including having a higher chance of stay-at-home mothers ending their lives in poverty.

A taxpayer-funded 'care credit' paid into women's accounts when they took time off work to raise a family could reduce the proportion of women who ended up living in poverty in retirement.

The uncosted care credit suggestion, which made no mention of men who take time off to be stay-at-home fathers, comes from the Commission for Financial Capability (CFFC), which is consulting the public on whether New Zealand's retirement policies need changing.

Research by the CFFC showed 14 per cent of women aged 65 and over were living in poverty, compared to 6.6 per cent of men, though that was partly the result of men 's lower life expectancies.

Poverty was defined as having an income of less than 50 per cent of median household disposable income in the research paper prepared by Jennifer Curtin and Yanshu Huang of Auckland University's Public Policy Institute.

“The financial cost of caring for others does make women financially vulnerable long term, and we know this is compounded for Māori and Pasifika women who tend to provide a lot of support for their extended family and community,' said Peter Cordtz, interim Retirement Commissioner.

* KiwiSaver: Are you missing out on money?

* Five ways KiwiSaver scheme will change this year

* KiwiSaver: Should it be your retirement savings plan?

* The downside of 6 and 10 per cent KiwiSaver contribution rates**

Women arrived at retirement on average 18 per cent worse off than men due to New Zealand's gender pay gap of 9.2 per cent, said interim Retirement Commissioner Peter Cordtz.

That was largely the result of more women working in lower-paid industries leaving them unable to save as much through KiwiSaver as men.

But the retirement wealth gap was compounded by women often taking out of the workforce to raise children or look after elderly parents, Cordtz said.

Women's financial situation in retirement is compounded by their longer life expectancy, he said.

A woman aged 65 today could expect to live to 86 compared to 84 for men.

Women were also usually the younger partner in a relationship and women in this position had a high chance of being widowed and bearing the expense of living alone for longer.

Curtin and Huang found women were far more likely to look after young, sick, disabled or elderly relatives, and were also more likely to take career breaks to do so, or to do so by working part-time.

A small proportion of men take time off to raise children while their partners continue to work full time.

'Managing care responsibilities often leads women to choose part-time work over full-time work,' they said.

The idea of a care credit is not novel.

Curtin and Huang noted other countries attempted to redress this disadvantage by paying care credits into women's pension accounts in recognition of the time they take out of the workforce.

Estonia, Finland and Norway all had a form of care subsidy.

Estonia paid employer contributions during childcare periods of up to three years per child. Norway credits individuals for periods of care work with approximately 71 per cent of the average full-time wage.

When women retired in Finland, their pension is topped up with contributions of up to three years per child.

Exactly how the care credit idea might work, including how to make it fair, was still up for debate, Cordtz said.

If the level of care credit were linked to women's incomes immediately before they had babies, lower-paid women would benefit less than well-paid women, and women who were unemployed would not benefit at all.

'That's one of the reasons we are going to take some time and care here on what's working internationally, and how that might apply in the New Zealand context,' Cordtz said.