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SocietyMarch 19, 2018

Not so screwed: How women can close the retirement savings gap

Guest writer
Photo: Getty Images
Photo: Getty Images

The effects of the gender pay gap don’t only last throughout a woman’s working life – they carry on into her retirement. But there are ways to soften the blow to your KiwiSaver, writes Merewyn Groom.

If my recent article Super screwed: How the pay gap wrecks women’s retirements was all a bit depressing, for many women it was also a wake-up call. So I teamed up with registered financial adviser Jil O’Brien to share some ideas about steps women — and for that matter men — can take toward a more secure retirement.

In her job, O’Brien often meets women who stick their heads in the sand when it comes to planning for their financial futures.

We have a retirement savings system that hugely disadvantages women both due to pay disparity and because 80% of unpaid work in New Zealand is carried out by women (raising a family, caring for elderly relatives, including the in-laws, voluntary work, etc). In a system where a percentage of income is saved for eventual retirement, what results is women have much less money when that time comes.

Think you’re okay because you’re a bloke? Pay inequality for women flows through to a reduced family income overall. The same set of issues apply to anyone who takes time out of the workforce, and stay-at-home dads are increasingly common. Plenty of men get sick, or are made redundant and then cannot find work at a similar level of pay. We’ve seen lots of this since the deregulation in the 80s and there is likely to be another wave as industries in New Zealand change and automation increases.

The KiwiSaver system is an important tool with a range of benefits for many New Zealanders to plan for their retirement, but it’s not perfect. For example, many stay-at-home parents will not qualify for a first home grant due to not meeting minimum contribution levels. Surely young families are among those who most need this grant?

What can we do?

We need some policy changes, but before that can happen we as a society need to quit wasting time and oxygen denying the pay gap exists, and instead focus on some solutions. Until there are major improvements, look closely at your KiwiSaver fund.

Here are some ideas to consider:

Have a goal

The free calculators in Sorted.co.nz give you an idea of how much you are going to need and what you need to be contributing to get there.

Think carefully about your contribution rate

The minimum is 3% and your employer must also contribute another 3% if you are between 18 and 65 years old. Some employers offer to match a higher contribution rate, so it pays to check you aren’t missing out. Retirement may seem like a long way off but money put in early has more time to accumulate interest and this compounding interest can have a big effect on how much you finish up with. If you consider going for the highest contribution rate you can afford right now, you can reduce it to 3% later on if you need to.

Pay attention

Yes it’s boring and numbers can be confusing but you need to keep an eye on returns, and make sure you are getting a good deal. Make an active choice about your KiwiSaver. If you don’t, your contributions will be invested in a default investment fund. Think about your investment goals (including the length of time until you plan on withdrawing your KiwiSaver funds) and your attitude to risk,  and choose a fund that will help you meet your objectives. This tool can help you.

Switching funds is very easy and there are many different products and providers to suit your priorities.

Consider fees and returns

While fees can significantly reduce your returns, the Financial Markets Authority says investors’ focus should be on both fees and returns – it’s even created a KiwiSaver Fee Tracker Tool to help you do just that!

Check your PIR tax rate is correct

Your KiwiSaver investment returns are taxed according to your Prescribed Investor Rate (PIR). This is based on your annual taxable income. It’s important you get this rate right — if you pay more than you need to, the money won’t be refunded.

Make sure you’re getting your Member Tax Credit

The government will contribute 50c for every dollar you put in up to a maximum of $521.43. That’s over $500 of free money into your retirement fund each year. To get the full amount, you need to contribute at least $1042.86 per year, that’s just over $20 per week. If you’re earning $35,000 and contributing 3% then that will cover it.

Susan St John, director of the Retirement Policy and Research Centre, says that women continuing to contribute to KiwiSaver while out of the workforce is one way to help close the gap. “If they can continue to contribute in one way or another — either by earning part-time or through the household — then it is the best investment you can make.” For couples with one high earner, it might make sense to work out whether it is viable to reduce that partner’s contributions in order to make voluntary contributions to the other partner’s KiwiSaver. If each partner contributes the minimum of $1042 per year, you’ll collect the full member tax credit for both KiwiSaver accounts.

Don’t rely on a partner’s savings

Maintain greater autonomy by fully discussing the financial implications of taking time out of paid employment, be it for children, an extended holiday or any other reason. Realise that the time out has a long-term effect – it’s not only reduced income for the period you are out of the workforce. The key point behind these suggested conversations is to consider your own needs as equal to those of your partner and family. Women can often view their personal needs as less important, which can come at a financial cost.

Here are some ideas you could discuss to help bridge the gap:

Treat childcare as a joint expense between partners (often it is assumed it is the mother’s expense) and consider how that could look for your family. Would the main income earner reducing hours to share childcare help? This could allow you to return to work full-time or complete further training to improve your career prospects.

Agree to a higher rate of contributions for the stay-at-home parent once they return to the workforce to help make up for the time without earnings.

Pay a wage to the stay-at-home parent. Giving an economic value (even a small one) to the roles of raising children and running a home offers the ability to maintain autonomy over retirement savings. Of course, you need to have the financial means to do this but viewing the role as requiring a wage can shift priorities enough to make it happen.

For more information on how KiwiSaver works take a look at the KiwiSaver website.

Changes to the system will come slowly but we can all start looking after our own financial lives today. Here’s to a comfortable retirement.

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Merewyn Groom is completing a Bachelor of Commerce at Victoria University of Wellington and is author of Super screwed: How the pay gap wrecks women’s retirements.

Jil O’Brien is a Registered Financial Adviser and director of Coast Advisers. She offers free KiwiSaver Information Sessions and advice on personal and business insurance. A copy of her disclosure statement is available here. Any info in this article is provided for general information purposes only, does not take into account any person’s particular financial situation or goals and, accordingly, doesn’t constitute personalised financial advice under the Financial Advisers Act 2008. We recommend investors seek advice from their usual adviser before taking any action.

This section is made possible by Simplicity, New Zealand’s fastest growing KiwiSaver scheme. As a nonprofit, Simplicity only charges members what it costs to invest their money. It already has more than 12,500 plus members who, together, are saving more than $3.8 million annually in fees. This year, New Zealanders will pay more than $525 million in KiwiSaver fees. Why pay more than you need to? It takes two minutes to switch. Grab your IRD # and driver’s licence. It really is that simple.

Keep going!
Photo: Getty Images
Photo: Getty Images

SocietyMarch 17, 2018

‘Open secrets run rife’: what’s forgotten in the rush to judge Russell McVeagh

Guest writer
Photo: Getty Images
Photo: Getty Images

A young lawyer wonders if her older peers’ response to the Russell McVeagh revelations might be just a bit too convenient.

When the Russell McVeagh sexual assault allegations were published I imagine I wasn’t the only recent law graduate who felt smug. The stories of what had happened that summer were an open secret around law school and a part of me felt like this was the perfect comeuppance.

It also fit the narrative. Russell McVeagh as the big bad wolf of the commercial law sector was a folktale we knew well as law students. The firm was well known for its competitive environment and work-hard play-hard ethos. Inside the legal community, there were plenty of “well, of course” murmurs at the news. Now, as I begin my career in a large commercial firm, I can’t help but feel a little queasy about the whole thing.

It seems like everyone wants a hand on Arthur’s sword. Universities and student associations are cutting ties with Russell McVeagh; other firms are jumping at the opportunity to raise their own profile as defenders of equity (and available for business!); and the whole profession is hand on heart denouncing sexism through a series of internal reviews – who cares if the parameters are fuzzy, look at our active steps!

People are searching for a resolution; that’s a sentiment I can understand. It’s uncomfortable to feel like there’s no answer. When all it takes to solve sexism is a jab at a powerful law firm, that’s an appealing option. The harder Russell McVeagh falls, the easier for many organisations with exactly the same anomic state to present a solution.

To be clear, I am not advocating for gentler consequences for Russell McVeagh. It’s just that Russell McVeagh is not the only law organisation where this kind of thing has happened, or is happening.

Open secrets run rife throughout law schools and the legal profession. A lecturer who cherry picks women for his research assistant positions, then accompanies them to clothing stores to ensure they look “professional”; law camps aimed at freshly minted second year students, where older male students brag as their tally of sexual conquests rises; lecturers who use the Socratic method to make uncomfortable comments about what women students are wearing.

There’s more: law clerks who are selected by their headshot, attached as a requirement on recruitment packs; whispered networks of women discreetly alerting their colleagues about the men most likely to act inappropriately; junior lawyers providing a human barrier between partners and clerks when the alcohol begins to flow. All under the watchful gaze of people in a position to know, and do, better.

This uprising against Russell McVeagh has missed vital voices. While there’s been plenty of brave talk about internal reviews (and public denouncements that double as diversity advertisements), I wonder if any real, deep understanding can be gained without meaningful discussion and input from young graduates, clerks and students – some of whom know, first hand, where deeply rooted infections thrive.

When you secure a clerkship in a commercial firm it comes as a huge relief. You’ve filled out pages of psychometric testing, solved the ‘future of law’ in an hour long interview, and spent your clothing allowance on ill fitting blazers and pencil skirts you’ll never wear again.

But there’s also an ever-present anxiety, because a clerkship can be thought of as an extended job interview. Every new clerk is painstakingly briefed on a social code of sorts: always have a drink in your hand, but don’t drink too much; don’t be too loud and arrogant, but make sure you fully immerse yourself in the fabric of the firm. These are what’s known in the profession as “career limiting moves”.

The structure of an established firm only serves to thicken the vines of this labyrinth. Each partner sets the tone of their department, creating a mini empire under one umbrella letterhead. As much as a firm will insist that its open office plan erases hierarchy in favour of a collegial horizontal structure, the fear of “breaking rank” is palpable. Avenues for help aren’t communicated to clerks until it’s too late (if at all), and often start and end with those directly responsible for setting the culture.

Every attendance at a social function feels like it could make or break your chances of being a good fit for the firm at the end of your summer. Trying to develop your “personal brand” makes it hard to objectively consider whether it’s normal for a senior associate to be that drunk and shouty, or a partner to be that handsy with a junior. Why is everyone looking on as if this is normal? Am I just a sensitive millennial? Is this just what the “real world” is like? What kind of uncomfortable meeting will I have to endure if I even mention this? Does complaining count as a career limiting move?

If there’s anything good to come from the Russell McVeagh revelations, it’s the potential for these questions to be answered in a way that supports and strengthens those most at risk. The bravery of the victims has shone some light on the darkened corners of the legal industry, and widened the parameters of what is considered unacceptable behaviour. It is so important that this opportunity is grasped by all legal firms and law faculties. We need to prioritise the young, vulnerable voices of people for whom it’s much safer to keep quiet. To do this, we’ll need go a lot further simply cutting off the head of the big bad wolf.

This section is made possible by Simplicity, New Zealand’s fastest growing KiwiSaver scheme. As a nonprofit, Simplicity only charges members what it costs to invest their money. It already has more than 12,500 plus members who, together, are saving more than $3.8 million annually in fees. This year, New Zealanders will pay more than $525 million in KiwiSaver fees. Why pay more than you need to? It takes two minutes to switch. Grab your IRD # and driver’s licence. It really is that simple.

Society