Setting yourself up for a comfortable retirement is hard enough as it is, but saving enough super becomes even tougher when you throw divorce into the mix.
While divorce isn’t fun for anyone, research by the Australian Institute of Family Studies (AIFS) highlights how difficult it is for women with dependent children to recover income post-divorce, compared to those who re-partner, making saving for retirement almost impossible.
According to a 2010 study by the AIST, the super balances of single women over 55 (including divorcees) are a lot less than those of single men, with the average balance for men aged between 58-62 being $210,000, while the average balance for women of the same age is just $95,000.
In the case of divorce, Australian family law treats superannuation as property, meaning super can be split either through an agreement or through a court order as part of a property settlement between a couple. But in many cases, women tend to choose the family home over super when negotiating the division of property.
“The evidence we looked at would indicate that there’s not a lot of use of those provisions and I believe women often make the choice of property over super,” says Cate Wood, chair of Women in Super and president of the Australian Institute of Superannuation Trustees.
“There’s a lot of logic to that. They want to retain a lot of stability for children, for example, and they want to maintain the family home, so they trade off super for the family home. Women are more comfortable in retirement if they own their own home, but it means, in terms of super savings, that they’re well behind the eight ball.”
Think ahead to prepare for the worst
If the AIFS research is anything to go by, in most cases it will tough for women to rebuild their super after divorce.
While some women are paid well enough to enable them to increase their super contributions in the wake of a divorce, Wood says this isn’t the case for the vast majority of women, meaning they can’t recover from divorce in this way.
Instead, women need to make sure they focus on building their nest egg early on in their career.
“Really, the only thing to do is to look after yourself when you commence employment. Most young women are looking ahead to having a relationship and caring responsibilities at some point in time, so before that is the time to increase savings and benefit from long-term compound interest,” she says.
According to Ian Fryer, head of research at superannuation research and consultancy firm Chant West, there are a few simple things women can do to build their super early on in their life and protect themselves from situations such as divorce down the track.
“Have they consolidated their super? Is it invested in the right way?” Fryer says, listing the considerations women need to make. “The biggest difference women can make is by making additional contributions.”
When it comes to making additional contributions to your super, Fryer says there are essentially two options: after-tax contributions and salary sacrificing.
“With after-tax contributions, you get your take-home pay and out of your take-home pay you make contributions. If you earn less than $47,000, the government will make a contribution on your behalf as well,” he says.
If you earn less than $32,000 and contribute $1000, the government will put in $500.
“So for someone who isn’t earning a lot of income, putting in $1000 isn’t a bad idea. Having said that, if someone is only earning that amount they may not have enough to do that,” he says.
For those on a higher salary, Fryer suggests salary sacrificing.
“[Your salary] goes into your super account and tax is only 15%, so there are tax advantages.”
Aside from making additional contributions early on in their career, Wood suggests considering the conditions offered by Australian employers.
“It may not be the reality for all, but if you do have a choice of employer, look at the sorts of conditions they offer,” she says. “Some employers will pay super payments on parental leave, so they’re over and above the base conditions.”