When Annabelle became pregnant with her first child, she and her partner made a decision: for the duration of her maternity leave, he would redirect a portion of his superannuation to her. “I am not the finance person but I’m very lucky that my partner works in that space and has a much broader understanding of it,” she says.
“And he has caught me up to speed with how screwed over women get when they go on maternity leave. He essentially crunched the numbers and figured out … what I had not been paid and paid it to me.”
Now Annabelle considers redirecting some super an absolute “no-brainer” while only one parent is on leave.
“While we press pause on our career to raise babies … their career can essentially continue as normal and they can climb the ladder. So I think if you have a partner that wants to treat you as an equal, it’s a really easy, sensible and supportive thing to do that they can be really proud of as well.”
Annabelle is right to be taking extra steps to look out for her super.
New research by the Australia Institute’s Centre for Future Work found that, on average, women in Australia retire with $136,000 less in superannuation than men. The biggest culprit in causing that disparity is the gender pay gap but taking time out of the workforce or dropping down to part-time to raise children also has a significant impact.
It’s not just months or years of lost income but the advancement opportunities lost with time off the job, which mean slower salary increases once a primary carer returns to work.
“You’ve got all those things going against you,” says Marisa Broome, a financial planner who is passionate about addressing superannuation disparity.
“What distresses me the most is how many women don’t know [about super disparity], don’t get that information, aren’t involved with their money and often let their male partners make all the decisions about money.
“And now I’m seeing people my age – women over the age of 50 – be the fastest-growing group of people living in poverty in Australia.”
There is no hard figure for how much super someone needs by retirement age, but the Association of Superannuation Funds of Australia estimate it takes a lump sum of $690,000 for a couple to have a comfortable retirement – if they own their own home. That number goes up quite a bit for renters, those who live in expensive capital cities, or both, says Broome. That’s no small sum, and for singles, the number dips by just $100,000 to $595,000.
Those figures are daunting. But the good news is there are some relatively achievable steps you can take to mitigate the superannuation gap.
$1 at 30 is worth $5 by 65
Super grows not just thanks to deposits but also compound interest. “The money you put in earns interest and then the interest earns interest,” Broome says.
That means the earlier you get more money in there, the bigger your balance will be at retirement. If you’re working full or part-time, your employer will already pay at least 10.5% of your salary into your super fund. But finance experts like Broome urge you to consider topping that up with a little extra from your take-home pay – especially if you think you might have children later on.
“If you can actually put a bit extra into super when you’re first starting work, that really helps if you’re going to take a career break somewhere down the track because you’ve got that compounding of the money that you’ve been able to put away,” Broome says.
Some workplaces allow employees to salary sacrifice additional super contributions, meaning extra deposits come out before tax. Depending on how much you earn, this can offer a lot of bang for your buck. Those able to salary-sacrifice themselves down a tax rate see the biggest benefits. If someone earning $125,000 put 4% of their pre-tax wage into super this financial year, it would increase their total super contribution by 32%, while only dropping their take home pay by 3%.
Even if you can’t salary sacrifice, you can still make voluntary contributions by logging on to your super fund’s website, and you are allowed to claim these as a tax deduction, up to a cap of $27,500 each financial year (a figure that any employer contributions you receive count towards).
But – and this is crucial – you need to notify your fund first.
“If you’re making a one-off or a regular contribution out of your personal money into super, you need to do what’s called a notice of intent to claim a tax deduction – the most boring, worst-named form in Australia,” says Hamish Landreth, director and financial adviser at Prosperity Advisers Group. “But it’s self-explanatory. You’re essentially telling your super fund, ‘Hey, I’m going to claim this as a tax deduction,’ they report it to the ATO, and then you’re allowed to claim it in your tax return at the end of the year.”
There are also programs like Super Rewards that give you cash back into your super when you shop with certain retailers, while the app Raiz will “round up” the amount you spend on purchases and contribute it to your super account.
Things that don’t cost a cent
Even if you don’t have any extra money to throw into your super now, simple steps like checking you’re in the right fund can still benefit your balance.
First, consolidate your super accounts. Having more than one account means paying multiple sets of super fees, which eat away at your balance.
This is (relatively) quick and easy to do, by logging on to the Australian Taxation Office page of your MyGov portal.
You also want to ensure your employer is actually paying you super each quarter – check the transaction history on your fund’s website to be sure. Industry Super’s most recent report into unpaid super estimated employees missed out on $5bn in employer contributions in a single tax year.
While you’re logged in, check which insurance policies you’ve got on your fund. Many super funds automatically opt you into things like life insurance and total disability cover, then deduct non-trivial fees from your balance for them. Depending on your circumstances, you may want to lower or do without that insurance.
Another important step is making sure you’re with a fund that performs well and has relatively low fees – Canstar and the ATO both have online super comparison tools to see how your fund stacks up. If yours is middling, it could be time to switch funds.
Split with your spouse
Having kids? To follow Annabelle’s lead, there are a couple of ways your partner can redirect some of their super into your fund while you’re on parental leave, so your balance doesn’t suffer long-term.
The first is called a spouse contribution. If your income is below $37,000 (for instance if you are taking half pay while on parental leave) your partner can make a one-off contribution of $3,000 to your super fund and they will receive a tax benefit for doing it.
For a longer-term approach without any income caps, look at what is called spouse splitting. It’s essentially a way for one partner to reallocate some of their super into the other’s fund. It’s “a really useful strategy to try to equalise balances within a couple,” Landreth says. To get it set up, call your super fund.
Playing catchup
It may be easy to take advantage of compound interest magic by making small additional contributions in your 20s or 30s. But later in your working life, if you’re trying to make up for lost earning years, you’ll need to boost your balance in a hurry.
A tax break known as catchup contributions was ostensibly designed to benefit women who take time out of the workforce for maternity leave. It allows you to roll over any unused concessional contributions from the five previous years, so that you can deposit more than $27,500 – and still claim it as a tax deduction. Of course, you need to have that money to play catchup with.
“The bad thing about that [policy] is when people go back to the workforce, they can’t really afford the catchup because they’re spending more income on childcare,” says Broome. “Even though it’s a really good policy in theory, it doesn’t get used as much as it should.”
Catchup contributions may be most useful for those who have received an inheritance or sold an investment property.
“In the next 10 years, we are going to see the greatest shift of wealth ever between generations as the baby boomers start to pass away,” Broome says. “So if you do come into an unexpected amount of money, I would be looking at superannuation as one of the areas that you could possibly make some top investments.”
If you’ve maxed out that catchup cap, you can still make a non-concessional contribution up to a certain limit, Landreth says. “You don’t get a tax benefit, but it’s a way to get a large amount of money into superannuation quickly.”
The bottom line
Whatever your financial situation, paying attention to your super is the first step to a bigger balance.
Broome says “just a little bit of engagement – checking you’re in the right fund, checking you’re in the right investment option, checking you don’t have too much insurance and if you’re taking time out of the workforce, actually trying to catch up on some of those contributions” is enough.
“People actually don’t even open this statement every year,” she says. And that’s “the biggest problem in superannuation”.
