While you’re looking after the kids, who’s looking after you? Find out how to minimise a super shortfall and, better yet, boost your super.
Taking time out of the paid workforce to start a family can make it difficult to accumulate enough super for a comfortable retirement.
According to the Association of Superannuation Funds of Australia a three-year break from the paid labour force, say five years into a career, can lead to an eventual retirement payout of about $27,000 less than it otherwise may have been.
This partly explains why women are well behind men in super accumulation: The latest figures show that the average retirement lump sum accumulated by a man is $198,000, while the average woman accumulates only $112,600.
But there are ways to avoid this shortfall, while you take time off to raise your kids – even with reduced or no pay.
Paid parental leave
Did you know that many employers provide at least six weeks of maternity leave on full pay, on top of the federal government’s 18 weeks of Paid Parental Leave? Some employers even allow you to extend your parental leave by accepting half pay over a longer period.
If your employer pays parental leave, your 9% super guarantee contribution may continue to be paid into your fund, while you receive parental leave payments – please check with your employer before going on leave.
If you’re planning to take time off, it’s worth checking what will happen with any death and disability insurance cover you currently hold – both inside and outside super.
Another way to boost super balances is for the working partner to split up to 85% of his or her concessional super contributions for that year into the non-working spouse’s super account. You simply need to complete the spouse contribution splitting form and provide it to the trustee of your super fund after the end of the financial year.
Spouse contribution offset
If your spouse has an income of less than $13,800 for a given financial year, you can receive a tax offset of up to $540 by making up to $3,000 in after tax contributions to your spouse’s super account.
Government co-contribution boost
The government is also happy to help – if you earn less than $61,920 in a financial year, you may be eligible for the government co-contribution. What’s more, if you earn $31,920 or less, the government will match your contributions dollar for dollar up to a maximum of $1,000. So, $1,000 in after tax contributions can effectively boost your super by $2,000.
This co-contribution reduces by 3.3 cents for each dollar you earn over $31,920, phasing out at $61,920. This can be done each year you are out of the workforce, provided you meet the income eligibility requirements.
Go to the Australian Taxation Office (ATO) website at ato.gov.au for more information about how to ensure your personal super contribution counts. In most cases, the ATO will pay your co-contribution amount directly to your super fund.
Don’t forget, if you’ve taken parental leave (and because of time away from work have earned less than the minimum) you may be eligible for government co-contributions.
A great way to catch up on your super once you return to work is to sacrifice a set amount from your salary into your super, in addition to any super guarantee contributions made by your employer. This may save you some income tax, because salary sacrifice contributions are taxed at up to 15%, which may be lower than your marginal tax rate, had you taken it as salary and then contributed into super after tax.
Be smart about your investments. Make sure your money is working as hard as it possibly can, based on your attitude to risk and choice of investment time frame. If you’re not sure of the best option for you, call us today.
 ABS Survey of Income and Housing, compiled for the Association of Superannuation Funds of Australia (ASFA), 2009-10.
What you need to know
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