Yahoo Finance 3 ways to protect your super when you have a baby
Australian women will retire with around 30 per cent less in their super than their male counterparts, and the years spent away from the paid workforce to raise children is a significant driver of this.
Parental leave is one of the few forms of paid leave in Australia that doesn’t come with superannuation payments, a fact that 68 per cent of Australians don’t know.
Also read: 3 tips to budget for having a baby
This quirk in the system is the one thing blocking Australia from saying it offers real financial gender equality, the World Bank has found.
And according to Finder’s From pay gap to parity report, 23 per cent of women will retire with no super compared to 13 per cent of men.
For Australian mums, the question is: how can they protect their super when they’re not in the paid workforce?
Yahoo Finance spoke to the experts to find out.
1. Talk to your partner and use the Government schemes
“If I was going to be having a break and not earning any income for 12 months, I’d seriously consider accessing any extra benefits, as far as super goes,” author of Unf*ck Your Finances Melissa Browne told Yahoo Finance.
“If you do take time out of the workforce to care for children, it’s a good idea to top up your superannuation if you can – your older self will thank you,” personal finance expert at Finder Kate Browne added.
These are the main ways couples can look after the primary caregiver’s super:
Government co-contributions
This could be the co-contribution scheme, which sees the Government match extra super payments up to $500 for people earning below $56,112.
To receive the maximum payment, you need to contribute at least an extra $1,000 to your super account and be earning no more than $41,112.
If you’re receiving between $41,112 and $56,112, then the Government co-contribution will be phased down.
Spouse contributions
A spouse contribution is an after-tax payment made by a partner into the caregiver’s account. Then, they can claim an 18 per cent tax offset on contributions of up to $3,000. Effectively, this is up to a $540 offset.
For the partner to access the highest 18 per cent offset, the caregiver needs to be earning less than $37,000.
The offset reduces as the caregiver’s income increases, before phasing out entirely if they earn $40,000 or more.
Contribution splitting
This is where a caregiver’s spouse shares their super, and involves the paid partner directing a portion of their super payments into the caregiving partner’s account.
It’s paid as a lump sum and needs to occur in the financial year following the one in which the superannuation contributions were made. Up to 85 per cent of a partner’s superannuation payments can be redirected to their spouse through this.
To do this, you’ll need to use this ATO form to formalise the split.
Then, if it’s possible, it’s a good idea to make extra payments upon returning to the paid workforce.
2. See if your employer will pay you super
Ideally, your employer will simply continue to pay you while you are on maternity leave. Some companies like ANZ, Unilever and Westpac already do.
But if you’re not sure, it’s worth finding that out.
“Speak to your employer and see what sorts of incentives they can provide to you,” UpStreet founder and finance expert Shivani Gopal said.
“Can they continue to pay your superannuation? You don’t know until you ask. It’s part of negotiating your salary - see if you can negotiate better superannuation conditions for yourself.”
Some funds like Verve Super also offer to negotiate this on their member’s behalf.
3. Escape the fees
It’s also a good idea to see if your fund is doing the best it can do for you.
Some funds, like Verve Super, will wipe fees for women who are taking a break from the paid workforce.
“More and more funds are looking at that as a possibility,” Browne said.
While fees may seem like a minor thing to consider, they can seriously add up.
According to Canstar analysis, a 25-year-old earning $74,516 with $25,096 in super paying 1.50 per cent in fees would have $662,353 by retirement.
If that 25-year-old had been paying just 0.75 per cent in fees, they would have $821,749.
This is an even bigger problem if you have multiple super accounts, so it’s worth consolidating your funds to only pay one set of fees. Just make sure you’re picking the fund with the best insurance and fee proposition.
“You want to maximise [your super] if you’re going to have that break,” Browne summarised.
Food for thought
It’s also worth thinking about what will happen to a caregiver's super and earnings capacity when a child becomes old enough to attend care.
“Too often, I hear from male partners that childcare is not worth it because it’s such a large percentage of their partner’s income,” Browne said.
“When I used to be a financial adviser and I had those couples in my office, I’d say, ‘No, now let’s reconsider it as a percentage of both of your incomes. You’re both having this child, why are we just taking it as a percentage of one?’”
Too often, Browne found that the couples simply hadn’t thought of it. It’s something that she thinks is “just insane”.
The problem with this line of thinking is that it fails to consider the partner’s potential lifetime earnings shortfall and associated superannuation losses.
“The danger I see is that too many couples... don’t consider it as a percentage of the couple’s income and they don’t consider the compound nature of superannuation or the investing power that they would have lost.”
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