9 steps to protect your super from career breaks
By Bianca Hartge-Hazelman | 17 Apr 2019
Women taking time out of the workforce need to prepare for the impact on their retirement savings.
Taking a career break can slow the growth of your retirement savings, regardless of whether you’re planning to have children, work overseas, build a business or even take a sabbatical.
The good news is that because most career breaks are usually planned, there is often time and opportunity to pre-pay yourself superannuation before things are put on hold for a while.
Despite this, super tends to be an after-thought in the planning of many Australian women and career breaks are a big contributor to the gender gap in retirement savings.
Career breaks taking a toll on women’s super
For the past decade the average super balance for retiring women has been 36%—that’s 44% less than that for men, according to the Financy Women’s Index.
Based on the most recent 2016 data from the Australian Bureau of Statistics (ABS), the average super balance for women aged 15 and over was $101,700, compared to $153,000 for men1.
Interestingly even the shortest of stints out of the workforce can have an impact on superannuation.
Let’s look at the average full-time working woman on a weekly wage of $1,456 (as measured by the ABS). Over a two-year career break (104 weeks), super payments at the compulsory super guarantee rate of 9.5% amount to $14,383.
If we subtract the 15% contributions tax to arrive at a net benefit of $12,226 and then use the power of compound interest in super, and assume growth at 6.7% net of investment fees, that gives us $23,848 over 10 years.
This is money that many of us taking a career break miss out on.
How to help manage your retirement savings during a career break – checklist
So if a career break is something you’re planning on doing, here are nine things that can help you protect your retirement savings.
1. Log into your superannuation account or check your latest statement.
Familiarise yourself with your retirement savings. Understand how much you have in your account, what investment option you are in, what fees you are paying and if you have insurances.
2. Check your cashflow situation.
Before doing anything to top up your super ahead of a career break, consider your cash flow and assess whether you have sufficient income to allow for extra contributions to be made.
3. Pre-pay yourself super.
If you’re planning a career break and have a date in mind, as well as the financial capacity to top up your super, then it may be a good idea to maximise your annual concessional (before tax) contributions before taking a career break. Once you have an amount and the pre-payment timeframe in mind, such as six months before a baby is due, you could think about asking your employer to increase the salary sacrifice amount to a level you’re comfortable with, depending on your personal circumstances. The concessional contributions cap for the 2019-20 financial year is $25,000 per year. Importantly, your contributions to super will be preserved until you can meet a condition of release, most commonly retirement.
4. Understand your parental leave entitlements.
While some employers are increasingly paying superannuation on the paid and unpaid portions of parental leave, the vast majority do not and it’s not mandatory for them to do so. That said, it’s worth talking to your employer about whether they’ll continue to pay employee superannuation on parental leave.
5. Check whether you have any unused long-service leave.
Many career breaks are given a bit of a boost with some unused long-service or annual leave. If this is the case and you want to top up your super, cashflow permitting, consider using some of this leave to contribute to your super savings via a salary sacrifice arrangement.
6. See if you have any unused concessional super contributions.
From July 2018, a new measure kicked in that allows for unused concessional super contributions to be accumulated over five years, provided the individual’s total super balance on the 30th of June of the financial year prior to the year of contribution is less than $500,000. The first time you can use your unused concessional contributions is 1 July 2019. Once again the annual limit on concessional contributions is $25,000. In this case, individuals can make use of up to five years of previously unused contributions. This measure could help women returning to the workforce after career breaks to have children, giving them the ability to ‘catch-up’ on super by making higher concessional contributions without breaching the annual cap.
7. Find out whether you’re eligible for the spouse contribution tax offset.
2018 was also the first calendar year Australians were able to use the extended ‘spouse contribution tax offset’. The tax offset allows the higher earning partner in a relationship to make tax-reduced super contributions on behalf of their lower earning partner, as long as the lower earner has an income below $40,000. The full tax offset will now apply up to an income of $37,000, an increase from the previous $10,800.
8. Think about super splitting with your spouse.
It depends on your relative earnings but you might consider talking with your partner about a super splitting arrangement, so that both of you may be able to take advantage of the tax benefits and keep your savings pool growing.
9. Check your insurance.
Look at what insurance you may have in place within your superannuation and whether this is likely to be appropriate once you take a career break.
Bianca Hartge-Hazelman is a columnist on women’s money matters and is the founding publisher of Financy and the Financy Women’s Index.This article represents the views of the author only and does not necessarily reflect the views of AMP.