Australia’s Government Pledges to Require Retirement Contributions on Paid Parental Leave

Australian Prime Minister Anthony Albanese this week announced the Commonwealth Paid Parental Leave initiative will include contributions to employees’ defined contribution retirement accounts, starting in 2025, if his party remains in power.

In a major win for the superannuation industry — Australia’s nationwide defined contribution retirement system — and for Australian women, superannuation contributions of 12% of parental leave payments will be made by the government alongside parental leave payments, effective July 1, 2025. The proposal would only be effective if the Labor Party is re-elected in the next federal election, expected to take place in May 2025.

The measure is expected to benefit 180,000 families annually. While available to all new parents, the payment of super on PPL will overwhelmingly benefit women, who currently account for about 95% of those accessing the leave benefit. The present payment rate is the national minimum wage of A$882.75 ($584.27) per week, which means superannuation contributions would be about A$106 ($70.14) per week.

While the impact of paying super on top of PPL may be small, it will go some way toward closing the gender account balance gap in superannuation accounts. Currently, Australian women retire with as much as 25% less in their retirement accounts than men. The median superannuation account balance for those aged 60 to 64 is A$211,996 for males and A$158,806 for females, according to November 2023 data from the Association of Superannuation Funds of Australia.

The parental leave initiative is part of the Labor government’s national strategy for gender equality, Working for Women, and will be factored into the May federal budget. It is expected to cost about A$250 million per year, based on previous estimates by Australia’s Department of the Treasury when the superannuation guarantee rate was still 9.5%. The guarantee rate now is 11% and it is scheduled to rise to 12% on July 1, 2025.

Paying super on top of PPL has long been advocated for by the superannuation industry and unions and was a key recommendation from the Women’s Economic Equality Taskforce. When the government announced the proposed A$3 million superannuation tax last year, it was hoped the additional revenues derived would be directed to paying super on PPL. At the time, the government said it would do so when it could afford to.

The wealth management industry overwhelmingly welcomed the initiative. Mary Delahunty, chief executive of the Association of Superannuation Funds of Australia, said of the move: “It’s about bloody time.”

“For too long, women have retired with significantly fewer savings on average than men as a result of taking time off work or working reduced hours to have and raise children,” she said.

The head of the largest super fund in the country, AustralianSuper, said the announcement marks a major milestone for the women of Australia.

“Our data shows that a woman who takes 10 years out of the workforce to care for children has 12% less income in retirement than a woman who does not have a career break. That’s 12% less to pay for housing, food, healthcare, and other necessities to live well in retirement,” AustralianSuper chief executive Paul Schroder said. “After today’s announcement we look forward to seeing that gap close for many Australian women.”

This enhancement follows the government’s announcement in October 2022 that it would incrementally increase the PPL to 26 weeks by 2026 from 18 weeks. As of July 2023, it offers a combined 20 weeks to new parents, allowing them to take leave concurrently and removing any assumptions around primary care.

“The data is clear—that when women take time out of the workforce to raise children it impacts their retirement incomes with women retiring, on average, with about 25% less super than men,” Australia’s minister for women and finance, Katy Gallagher, said. “Paying super on government parental leave is an important investment to help close the super gap and to make decisions about balancing care and work easier for women.”

Amanda Rishworth, Australia’s minister for families and social services, said: “Paying superannuation on PPL is another key step to prioritize gender equality, better value care work and improve women’s workforce participation. It helps normalize taking time off work for caring responsibilities and reinforces PPL is not a welfare payment—it is a workplace entitlement just like annual and sick leave.”

Another recommendation from the Women’s Economic Equality Taskforce would extend PPL by phasing the entitlement up to 52 weeks and boosting the payments to reach a replacement wage and ensure the scheme incentivizes men’s use of PPL.

This article initially appeared in PLANSPONSOR’s sister publication, Financial Standard.