Many women take parental leave at some stage in their career and often more than once. Recent studies show that working mothers are now taking a longer period of parental leave before returning to work and when they do return to work, the vast majority work part-time.
Approximately 68.5% of all part-time workers are women, as women usually manage most of the family responsibilities. These part-time work arrangements continue for many years – not only before children are school-age, but also during the years children are at school.
Taking parental leave has a significant detrimental impact on a woman’s superannuation (super) balance over her working life. Not only is parental leave often taken at a lower level of pay or in part unpaid, but the breaks are likely to impact career progression. This is a major reason why women have on average 42% less in their super accounts at retirement than men.
It is important that we as women take some proactive steps to get better outcomes for our retirement. There are a number of actions you can take to correct the imbalance, no matter what age you are:
Concessional Contributions Carry Forward
The current concessional contributions cap for 2018-19 is $25,000 per individual, per financial year. Provided you are eligible to make a concessional contribution, this cap is the same regardless of age.
From 1 July 2018, individuals with a total superannuation balance below $500,000 can carry forward unused concessional contributions cap amounts, for up to five financial years.
This can assist women who have taken parental leave and those who are working fewer hours, to ‘catch up’ on contributions when they return to work or increase their work hours.
Spouse Contribution Splitting
Super contribution splitting allows a person to transfer concessional contributions made during the year to their spouse’s super account, provided their spouse is not over age 65. It is important to check whether your fund offers splitting, as it is not compulsory for super funds to do so.
Contribution splitting to a spouse can allow for a couple’s accumulation account balances to be equalized over time, ensuring that the stay-at-home mother or part-time working mother maintains her fair share of the couple’s collective superannuation savings.
The government assists people to save for their retirement by contributing to the super accounts of low and middle income individuals, provided that the person makes an after-tax super contribution and that 10% or more of that person’s total income is work income.
The maximum co-contribution is 50 cents for every $1 of personal super contributions made in a financial year, which is reduced when a taxpayer’s income exceeds $37,697. The co-contribution is reduced to zero once the upper income limit of $52,697 is reached.
The maximum government co-contribution amount of $500 may be a relatively small boost to a super account, but this can have a cumulative effect over a number of years and every additional savings amount helps.
After-tax contributions made directly to a spouse’s super account are known as spouse contributions. The spouse receiving the contribution must either be under age 65 or under age 70 having satisfied the work test. The spouse making the contribution can be any age and does not have to meet work test conditions.
These contributions allow the contributing spouse (who would usually have a higher income) to claim a tax offset of up to $540. This reduces the amount of tax the higher income spouse pays, as well as boosting the retirement savings of the lower income spouse.
Individuals aged over 65 can make a one-off contribution of up to $300,000 from the sale of their main residence to super. This means that a couple is able to make contributions of up to $600,000 collectively, provided that they have held the residence for more than 10 years.
There are no upper age restrictions or work test requirements for downsizer contributions. The contributions also do not count towards any contributions caps. Even if a person has a total super balance of $1.6 million or more, they can still make a downsizer contribution.
You should check whether your super fund accepts downsizer contributions and if they do, the contribution usually must be made within 90 days of the change of ownership.
Downsizer contributions present an opportunity for women over 65, who may have limited super due to having raised a family, to boost their retirement savings.
The successful employment of these strategies can make a material difference to the super balance of a mother who has devoted her time to raising a family at the expense of her superannuation savings; which is, in short, a lot of us.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.