Chapter 6: Superannuation

Superannuation entitlements and the chequered approach to payment of superannuation on maternity and parental leave across the APS was raised in close to half of the submissions received by the Review.

The nature of superannuation is complex but has a very real outcome on retirement savings for individuals and families. The superannuation gap in Australia between men and women exists at nearly every age group[178] and results in women having a balance of 42 per cent less than that of men's at retirement age[179], with unpaid superannuation on parental leave a contributing factor.[180]

The superannuation gap has flow-on effects for the retirement gender pay gap and is detrimental to women's economic equality. While the APS pays superannuation at a higher rate than most employers in Australia, how it is paid can depend on fund type, payment calculation, and whether a person is on paid or unpaid parental leave.

This chapter outlines the research on the superannuation gender gap and explores current inconsistencies in superannuation payments across the APS on parental leave, with recommendations on how it could be amended to create a fairer system encouraging mobility and retention across the APS.

The superannuation gap

Superannuation is designed to provide financial support to people in their retirement. Generally this is through employers paying a guaranteed percentage of earnings into a designated account for accumulative superannuation funds.[181]

However, defined benefit schemes are still operating for some employees in the APS who joined before 2005 (the Commonwealth Superannuation Scheme and Public Sector Superannuation Scheme), which require a combination of employer and employee contributions. In these schemes, the amount received at retirement is not exclusively based on contributions and investment earnings.[182]

For accumulative funds (e.g. the Public Sector Superannuation Accumulation Plan), contributions increase as an employee's income increases and, as the name suggests, accumulate over time. Typically, the accumulative model assumes a continuous paid work history for a sufficient level of savings to accrue.[183] Any time out of the workforce, and some unpaid leave, results in no employer paid contributions, which combined with lower earnings, results in a lower accumulated balance at retirement compared with an employee who worked full-time without career breaks.

"The current system ties superannuation to paid work and fails to account for women's workplace experience, including their likelihood of taking extended periods of unpaid leave to care for children, and their likelihood to work reduced hours and in precarious employment."

- CPSU submission[184]

The Treasury Retirement Income Review found that the main driver of the superannuation gap at retirement was the gap between men and women's working-life earnings, reflecting women's accumulated economic disadvantages.[185] The gap between men and women's working-life earnings occurs for a number of reasons, including work in lower paid roles and industries, increased likelihood of part-time or casual employment, taking career breaks to care for others, discrimination and harassment in the workforce, and family and domestic violence.[186] When a number of these factors occur throughout a working life, as they often do for women with children, the lower earnings from each accumulate to exacerbate the superannuation gap at retirement.[187]

The current situation in the APS

APS agencies pay superannuation on the paid leave component of maternity leave including what is provided under the Act and any additional paid leave provided under enterprise agreements.[188] Under the Act, maternity leave is to be paid as if an employee was granted pay for illness and therefore includes the payment of superannuation contribution.[189] The exception is when an enterprise agreement provides an administrative arrangement for the Act's 12 weeks' leave on full pay to be spread over 24 weeks at half pay. In this circumstance, superannuation is only payable for the first 12 weeks. For paid parental leave provisions in enterprise agreements, APS agencies usually pay superannuation on the entire paid leave component, whether at full pay or half pay.[190]

Agency policies regarding payment of superannuation on the unpaid component on maternity leave are inconsistent. Australian Public Service Commission (APSC) data indicates that a majority (79% ) of APS enterprise agreements allow for payment of employer superannuation on unpaid maternity and parental leave.[191] However, this may depend on the relevant superannuation scheme (defined benefit or accumulation type) and/or salary calculation method, i.e. fortnightly contribution salary (FCS)[192] or or ordinary time earnings (OTE)[193]. Additionally, many of these agency enterprise agreements provide for payment of superannuation during a finite window of unpaid parental-related leave, for example up to 12 or 24 months.[194] It is noted that the Trust Deed for the Public Sector Superannuation Accumulation Plan requires employer contributions on a 'pay day' for FCS members for all periods of paid and unpaid maternity and parental leave.[195]

"For the department, this issue [superannuation] is compounded during machinery of government (MoG) changes, where the inconsistent approaches cause issues and result in some staff receiving super and others not. This creates the need for the agency to navigate the unrealised expectations of staff whose conditions may have changed due to a MoG. Having a similar approach across the board would simplify this process and remove a great deal of angst for staff."

- Agency submission[196]

A number of submissions to the Review raised the issue of inconsistent superannuation calculation methodologies and payment, and advocated for a uniform approach that does not disadvantage parents because of the fund they are in or the calculation method used by their agency or fund.

What can be done?

Diversity in the operation of different superannuation schemes creates confusion and can lead employees to making a decision to change superannuation fund that may be beneficial to them in terms of contributions while working full time, but could end up impacting their contributions during parental leave. It can also impact recruitment and retention for agencies that do not offer employer superannuation on unpaid parental leave under their enterprise agreement.

With the introduction of stapled superannuation funds in 2021, many future employees could join the APS with a stapled fund that is not administered by the Commonwealth Superannuation Corporation (CSC), with contributions likely to be calculated with OTE not FSC. This could create more inequity within agencies and across the APS as the number of employees whose entitlements are calculated with OTE rather than FSC increases over time.

The Review recommends that a future system of parental leave in the APS should ensure equity across the board in terms of contributions regardless of fund or contribution type. The Review notes this may be impacted by rules governing different funds and could require further work in the future to achieve, but it is a necessary step to ensure greater women's economic equality by contributing to reducing the gender pay gap, and improve recruitment and retention across the APS.

Recommendation 15: Superannuation be paid on all forms of Parental Leave

15.1   The employer component of superannuation is to be paid on all forms of paid or unpaid pregnancy and parental leave, regardless of superannuation scheme type or contribution method, to contribute to reducing the gender pay gap and improve women's long term economic equality.