29 Nov 2022
Here are some tips to help keep your super on track
Whether you’re doing it because you want to travel, study or start a family, taking a career break can really affect your financial future. Thankfully, there are ways to help keep your superannuation in shape.
Whatever your stage of life, there are several reasons for planning a career break.
In some instances, leaving the workforce won’t impact your super. But in others, it could hit your financial future hard. The good news is that there are steps you can take now to help you retire comfortably.
The real cost of a career break
In late 2021, the average Australian income was around $90,000 per yeari. So, at this wage, with the Superannuation Guarantee rate at 10.5%, taking a one-year career break equates to a loss of around $9,500 in employer super payments. And because your super gets invested for you, over the long-term you’ll not only be out of pocket for the missing SG payments but also any gains the money could have made from being invested.
This type of impact is seen more profoundly among women because they tend to take more time off paid work. Studies show that while 64% of women in Australia and New Zealand take a break over the course of their careers, only 29% of men do the same – for women, the most common motivation is to raise a family, followed by travel; for men, the top reasons are to travel and studyii.
Research also showsiii that due to breaks in employment and the ongoing issue of gender pay gaps across many industries, Australian women are, on average, retiring with $80,000 less super than men.
Types of career breaks
Different types of breaks from your career can have different impacts on your super savings. In some cases, such as taking annual and long-service leave (unless on termination), you’ll still get paid a regular income and receive superannuation contributionsiv, so there won’t be an impact at all.
If you’re a full-time employee, you can usually also take 10 days paid sick/carer’s leave annually and still be eligible for SG payments from your employerv (the number of days may be on a pro-rata basis for part-time employees). In other instances, you may forego superannuation if you take a career break, even if your employer commits to hiring you back at the end of your time away from work.
Tips for managing your super on a career break
When it comes to a career break, many people start planning their temporary exit from the workplace well in advance. As part of this planning, you might want to consider contributing extra into your super as a way to minimise any impact on your retirement savings.
Concessional contributions
Concessional contributions are one way to do just this. There are two types of concessional contributions:
- Salary sacrifice contributions are pre-tax contributions taken from your salary before your income tax is calculated. This is on top of what your employer might pay you under the Superannuation Guarantee.
- Personal deductible contributions are voluntary contributions you can make using after-tax dollars (such as when you transfer funds from your bank account into your super), then claim a tax deduction for these payments.
Because concessional contributions are generally taxed at 15% which is usually lower than most people’s personal income tax ratevi, this can be a tax effective way to boost your super.
If you’re making contributions to your super, keep in mind that there are limits on the amount you can contribute each year.
The good news is that if you do take a career break, you may be able to make extra concessional contributions above the general cap using ‘carry forward’ arrangements. If you’re eligible, this allows you to access unused concessional cap amounts from previous years and add them to the current year instead – without paying additional taxvii.
Spouse contributions
If your spouse is taking a career break, you may choose to help their super to grow by making a spouse super contribution. If your partner earns under $40,000, and you meet other eligibility requirements, you can make after-tax contributions into their super, and may be eligible for a tax offset as well, depending on their income and your contributionsviii. Keep in mind that there are limits for how much can be contributed.
Contribution splitting
In addition to contributing directly into your spouse’s superannuation account, you can opt to transfer some of the super you recently contributed to your own account, into theirsix. You can typically redirect up to 85% of your concessional super contributions from the previous financial year.
Government co-contributions
The government’s co-contribution scheme is designed to help boost savings in super funds of low and middle-income earners. If you’re in this category and make personal (after-tax) contributions to your fund, the government may also make an annual contribution of up to $500x. You don’t need to apply – it will happen automatically after you’ve lodged your tax return, provided you’ve given your tax file number to your super fund.
Other ways to keep on top of your super
In addition to making contributions into your super account, there are other ways you could nurture your nest egg while on a career break. You could look at consolidating your super – that is, bringing all your super together into one account. It could save you time and money on managing multiple fund fees. Although before you consolidate, consider whether you’ll pay any withdrawal fees from your other super funds and check the features and benefits you have in your other super funds to make sure you're not losing anything that's important to you (like insurance).
Also, make it a priority to monitor how your super account and its investments are working for you. Your needs and attitudes toward investing will likely change at different stages of your life.
Talk to us today, to find out more about contributing to your super and plan for your financial future.
©AWM Services Pty Ltd. First published Jul 2022
i Australian Bureau of Statistics: Average full-time earnings up 2.1 per cent over 2021
ii HRM (May 2019): Career breaks are the new norm – so why are they still stigmatised?
iii Super Guru: Women and Super
iv Australian Taxation Office: Checklist: Salary or wages and ordinary time earnings
v Australian Government, Fair Work Ombudsman: Paid sick and carer’s leave
vi Australian Taxation Office: Tax on contributions
vii Australian Taxation Office: Carry-forward contributions
viii Australian Taxation Office: Spouse contributions
ix Australian Taxation Office: Contributions splitting
x Australian Taxation Office: Super co-contribution
If you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser.
Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.
