It’s no secret that the average female super balance is around half that of their male counterparts. The Association of Superannuation Funds of Australia (ASFA) estimates that the average super balance for a woman at the time of retirement is $138,150 compared to $292,500 for a man.
One of the main factors that contribute to this imbalance is the greater time women take out of the (paid) workforce to raise children.
There are a few simple strategies that could help narrow the gap for women in this phase of their lives. Let’s take a look.
Spouse contributions
If you decide to work part time or take a break completely, your spouse can make a contribution to your super during this time. If your income is $13,800 or less, your partner (married or de facto) can contribute up to $3,000 into your super and at the same time receive an 18 per cent tax rebate (of up to $540).
However, there are some strings attached if you want to receive these benefits. For instance, you must both be Australian residents, living together permanently at the time of the contribution, and as you might expect, your partner can’t also claim a tax deduction for the same contributions.
Super splitting
Super splitting is a good way to shift relatively large amounts of super between spouses since you can split up to 85 per cent of your annual concessional super contributions (which includes your compulsory and salary packaged super). The standard annual concessional contributions cap is $30,000 (it’s $35,000 for those 49 years or older on 30 June of the tax year prior to the one the contribution is made).
Your partner is allowed to split to you even if you are still working part time and making some contributions. Your partner makes the normal super contributions during the year and has until 30 June of the following year to transfer a contribution across to you – so you can still do the split for the 2014-15 tax year. As with spouse contributions, both married and de facto couples can do super splitting.
Government co-contribution
Many women taking a break will find they’re a low-income earner for that period. If so, you may be eligible to contribute up to $1,000 into super and have the government tip in 50 cents for every $1 you contribute – up to $500 in total.
It’s a great deal and one to consider if your total income is less than $50,454 for the 2015-16 financial year. There are a few other criteria to meet so check out if you’re eligible at the ATO website.
In addition to these strategies, the other big levers you can pull are your level of investment risk and making additional non-concessional (after-tax) contributions (if you can afford it).
Everyone’s personal circumstances differ, but most women during this phase of their lives should look for an asset allocation that reflects the long-term investment horizon they have until retirement (probably 30 to 40 years). This means a healthy allocation to riskier assets like Australian and international shares.
Having children isn’t cheap and paying off the mortgage is probably a priority. But if you do have additional savings, making personal non-concessional contributions (out of your after tax wages) can make a substantial difference in the future.
Keep in mind that evening up super balances isn’t just a ‘feel good’ thing; there are potential financial benefits to be had. One of the oft-mooted changes to super is a ‘pension tax’ aimed at larger super balances, or high levels of income. A way to minimise overall exposure to such a tax (or any other change based on super balance) is to spread super between spouses as evenly as possible.
The best news is that all of these strategies are simple to implement. Your super fund should be able to provide more information – for instance, Australian Super has an easy process mapped out for members looking to add to their super. The ATO website is also a great source of information on eligibility requirements and processes.
If you have a self-managed super fund make sure the strategies are allowed under the trust deed and that you speak to your accountant or administrator to get the necessary paperwork completed.
While child rearing may take you out of the workforce, it doesn’t mean your super balance should suffer. These simple strategies can help you make the most of government concessions and contributions and help reduce the super balance divide.
This article contains general investment advice only (under AFSL 469838).