See part one of our Super Recovery Series: Don’t let divorce ruin your retirement
Taking a career break to care for your children means (in most cases) your employer won’t be making any contributions to your super account, leaving a significant dent in your retirement nest egg.
According to Super Guru – an initiative of the Association of Superannuation Funds of Australia (ASFA) – that career break can leave you with a ‘super baby debt‘ of up to $50,000 by the time you reach retirement age. And if you take time out up until your children start school, this figure could be closer to $160,000, according to Canstar research, or to almost $290,000 if you’re out of the workforce for a decade.
While the current average career break is about five or six years according to research by the Australian Institute of Superannuation Trustees (AIST), career breaks still have a huge impact on a woman’s ability to prepare for retirement, despite the introduction of various incentives and policy measures.
To address this issue, the AIST and Women in Super have for a long time called for the introduction of superannuation guarantee payments on paid parental leave. In April this year, the president of the AIST and chair of Women in Super Cate Wood listed the three initiatives which are necessary to improve the retirement prospects of Australian women.
“Three things that can be implemented immediately to benefit women include removing the $450 per month earnings threshold for payment of superannuation guarantee payments, introducing superannuation guarantee payments on paid parental leave and lifting the concessional contributions cap from $25,000 to $50,000 for those with balances under $500,000,” she said.
“We know that women often have different working patterns than men, which affects their abilities to accumulate superannuation. Women’s balances often stagnate in their 30s or 40s due to taking time out of the workforce to care for, or raise, a family.”
In the meantime, ensuring you have a comfortable retirement following a career break involves much the same approach required for women trying to recover their super following divorce: preparation in the early years.
To avoid losing out when you take a break from your career, Super Guru suggests women adopt the ‘one per cent rule’ by adding an extra one per cent to their super contributions for the rest of their working life.
Chant West’s head of research Ian Fryer says women who are planning on having a family need to put some money aside before they have children.
“So women can build up a nice nest egg and not be behind the eight ball when they return to the workforce,” he says.
“But there needs to be a balance. Often there might be a mortgage, so there’s no money to put side. But even if it’s $20 a week – that’s $1000 a year. Making more contributions is the one thing that can make the biggest difference to someone’s retirement income. That can take discipline. It’s about giving up some things now but recognising that it’s going to pay off down the track.”
Similarly, Wood emphasises the difficulty women have in recovering from extended career breaks and the advantages of saving super earlier in your career.
“One good piece of advice – if you have a choice of employer – is to look at the sorts of conditions they offer. Some employers will pay super payments on parental leave, so they’re over and above the base conditions,” she says.
Referring to the new superannuation guarantee rate, Wood says women need to be aware of how critical the move from nine per cent to 12% is for them.
“It’s not gender specific but given women already have 50% the savings of men, they definitely need more super,” she says.
“The other [significant development] is the current change for low income super contributions. The majority who benefit from that are women, who are disproportionately represented in the low income tax bracket.”