Zilla Lyons, from Australian Catholic Superannuation and Retirement Fund, discusses the benefits of paid parental leave.
REGARDLESS of your political persuasion, the Paid Parental Leave scheme proposed by the Federal Government is an eye-opener.
Based on income replacement and capped, the scheme makes parental leave a workplace entitlement and distinguishes it from a welfare scheme.
As distinguished academic Eva Cox said: “Taking paid leave to have a baby reinforces the notion that it is legitimate to be an employee and a parent.”
This is a much needed culture change, essential to support parents’ continued workforce participation.
Who knows, there may even be a resultant baby boom with associated growth benefits for Australia’s long-term financial future.
The scheme should assist the financial security of both sexes, as time out of the workforce for parental duties can take a heavy toll on total lifetime earnings.
Most importantly, paid parental leave will especially assist the financial security, self-esteem and survival of women, 80-90 per cent of whom will be solely responsible for their finances at some stage in their lives.
A talkback radio contributor, discussing the Paid Parental Leave scheme, said that when “she had children she did not get any help and suggested that parents should find employment that ‘works’ around children”.
No doubt most parental benefit schemes did not exist in her time and, like most women of that era, she had to make do with time out of the workforce and child endowment payments.
Careers were put on hold or ceased to exist and many families battled financially on only one wage. Other families may not have enjoyed a luxurious lifestyle on a single wage, but in those days it was definitely more manageable than the situation today.
But let me take a personal journey to those days of long ago to demonstrate exactly why.
As a young married couple, my husband and I were able to buy our first home for $28,500 on a beachfront site in Townsville, when my annual teacher’s wage was $14,000.
Furthermore, I had been able to complete university degrees in Science, Commerce and a Diploma in Education without raising a dollar of debt.
This is completely at odds with the HECS system of today, where one degree alone can leave a debt stain of about $30,000 on a current student’s balance sheet.
Young teachers today earning $55,000 cannot hope to buy a city house for a little more than $100,000 and instead are looking at mortgages, which are at multiples of at least six to 10 times their annual salary.
I was fortunate to be able to take time out of the workforce for a number of years while rearing our four children and did not feel the financial pressures many young people face today, simply to meet regular mortgage repayments.
Superannuation was not much of an issue in those days. In fact it could be cashed out and spent on leaving employment, as the current preservation rules did not exist.
Lucky women were considered to be amongst those public servants who could take paid parental leave from their careers and re-enter the workforce when ready, knowing that their job and long- term superannuation benefits would be there waiting on their return.
The PPL is a universal scheme and promises to level the playing field for all employees, private and public. Isn’t this simply fair play? But what were the economic consequences of these times? Well, the majority of today’s baby boomers have managed to pay off their own homes; this in itself is great armour for retirement security.
However, older women today are considered to be “super losers”. Remembering that many people still retire with no super, research from Roy Morgan stresses that the average female super retirement balance is $92,000, which is 40 per cent less than that of the average male retiree with $154,000.
In 2012 Suncorp research indicated that taking just two years out of the workforce to have children could leave women up to $50,000 worse off in retirement.
As women outlive men by about five years on average and are single by choice or necessity at some point in their lives, the Australian outcome is that women are living longer on less and often quite miserably.
The plight and problems of female financial sustainability in Australia are fuelled by the fact that many women are taken out of the workforce for parental duties whilst of child-rearing age.
The PPL scheme should alleviate some of this pressure, as women will be able to confidently take leave knowing they are not abandoning their careers.
So why is it important to link the pay rate on PPL to the individual’s salary rather than pay a flat rate? The answer is that this linkage takes the PPL away from the concept of a handout or welfare and firmly embeds it as a workplace entitlement.
This wage connection is essential for a cultural change in the workplace to support parental participation and is necessary in order to close the financial gender gap.
The cost of the scheme, targeted to begin on July 1, 2015, is figured at about $5.5 billion a year, half of which is proposed to be covered by a 1.5 per cent levy on about 3200 of our largest Australian companies with taxable incomes of more than $5 million a year.
At time of introduction, the company tax rate is proposed to be 28.5per cent.
Dividends for investors in those 3200 large companies may be slightly affected as they will not receive tax credits on the levy; their franking credits could therefore be slightly reduced. This has been touted as a slug on retirees but is somewhat self-centred.
Super investments for the majority of Australians would also be impacted, so if there is any burden it is shared by all in the community.
However, a notable omission in many discussions is that large companies, such as BHP and Woolworths, will be able to opt out of their existing parental leave schemes, further increasing company profitability.
For cultural change in the workplace, the financial future of Australia and the self-esteem and long-term financial security of women, I firmly believe that this revolutionary scheme will be well worth the investment.
In the short term, if this means some small sacrifice by those who live from the proceeds of share investments, then perhaps it is a small price for Australians to pay.
In the long term Australians’ reliance on the social security system should be lessened.
Many of us have benefitted by the sacrifices of parents who volunteered or were conscripted into wars, believed at the time to be necessary for the security of their nation.
We must not forget that we senior citizens have enjoyed carefree times earlier in our lives, when houses were relatively much cheaper and many women were not compelled financially to work.
The PPL scheme is certainly progressive. It will assist women in particular to gain better financial security and self-esteem and ensure that their old age does not see them living longer on less than the man next door.
Disclaimer: This superannuation column is for general information only. It does not take into account your personal objectives, financial situation or needs. As a result, you should consider its appropriateness to your own situation and obtain independent financial advice before making any decisions.