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Don't let a career break hurt your super


Published 1 July 2015

If you’re planning some time out of the workforce, here are some ways to make sure your super keeps growing.

Taking a career break to care for children is a decision that parents tend to make gladly, but we do pay a financial price. Luckily it’s one that’s fairly easy to address.

When you take a career break, whether it’s to care for family, to study or travel, you lose income and the super contributions that go with it. If you’re a woman, this situation is particularly important to act on as women tend to end up with less super than men despite generally living longer and needing their super to last. As a result, women need to be smart about managing super– when they're working and when they're not.

What are you really missing out on?

If you’re planning a career break, or if you’ve already taken one, think about how much super you’ll miss out on as a result of that time away from work.

If you earn $80,000, every year that you’re not getting paid by your employer means missed super contributions of $7,600.

Let’s compare Jane and Lindadisclaimer. Both earn $80,000 p.a. and at the age of 30 have a super balance of $50,000.

Jane takes a two-year career break at 30, while Linda takes no career break. They both retire at 60. Assuming Jane makes no additional contributions during her career break, Jane will retire with $33,340 less than Linda.

How can you bridge the gap?

1. While you’re working

Putting additional super away while you’re working is one of the best ways to boost your retirement savings.

Using a salary sacrifice arrangement, your employer can put some of your pay straight into your super – before you pay tax on it. Generally, if you earn less than $300,000, these contributions are taxed at 15 per cent by your super fund, so you can actually reduce the amount of tax you’re paying overall.

Let’s look again at Jane and Linda.

This time both Jane and Linda have taken a two-year career break at the age of 30.

They both:

  • earn $80,000 per year
  • have $50,000 in super at age 32.

To make up for her super gap, on returning to work at age 32, Jane starts salary sacrificing $50 per week ($2,600 a year) into her super, while Linda does not.

By the age of 60, Jane has been able to accumulate an extra $97,503 compared to Linda.

If you do choose to salary sacrifice, remember that there are limits to the amount you can contribute each year and potential penalties if you breach those limits. Ask your employer if you’re unsure of how much you’re contributing and if your benefits could be affected by salary sacrifice.disclaimer

2. While you’re not working

While you're not working or if you're working reduced hours, there are also some opportunities to boost your super as a lower income may make you eligible for:

  • Spouse contributions - where a contribution from your spouse (to your super account) earns them a tax rebate of up to $540.

  • Contributions splitting - where your partner can transfer their employer and/or personal tax-deductible superannuation contributions into your account, subject to certain conditions.

Visit the ATO website or speak to your fund or financial adviser to see if you’re eligible and to find out more.

3. Flexible work

If you choose to work part time for a period after you've taken parental leave, it’s important to consider the impact this will have on your super.

A financial planner can help you take all of these aspects into account and build a comprehensive strategy that recognises your retirement, career and family plans. Consider asking them if you’re eligible for the government co-contribution, where the government tops up your contribution by up to $500 depending on your income and voluntary super contributions. Visit the ATO website for more information and to see if you're eligible.

Plan ahead

It’s clear that it pays to plan ahead if you’re thinking about taking a career break. It’s also not too late to start making up for time you’ve already taken away from the workforce. 

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OnePath Custodians Pty Limited (ABN 12 008 508 496, AFSL 238346, RSE L0000673) is the trustee of the OnePath MasterFund (ABN 53 789 980 697, RSE R1001525, SFN 292 916 944) (Fund) and issuer of the interests in “ANZ Smart Choice Super”, a suite of products consisting of ANZ Smart Choice Super, ANZ Smart Choice Super for employers and their employees and ANZ Smart Choice Super for QBE Management Services Pty Ltd and their employees. The issuer is a wholly owned subsidiary of Australia and New Zealand Banking Group Limited (ABN 11 005 357 522) (ANZ). ANZ is an authorised deposit taking institution (Bank) under the Banking Act 1959 (Cth). Although the issuer is owned by ANZ it is not a Bank. Except as described in the relevant Product Disclosure Statement (PDS), an investment with the issuer is not a deposit or other liability of ANZ or its related group companies and none of them stands behind or guarantees the issuer or the capital or performance of any investment. Such investment is subject to investment risk, including possible repayment delays and loss of income and principal invested. Returns can go up and down. Past performance is not indicative of future performance.

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This calculation assumes general wage inflation of 3.5%, an employer contribution rate of 9.5% and a balanced investment strategy with a return of 5.5% per annum. The investment returns includes an implicit allowance for investment management fees assumed to apply to each investment strategy. No allowance has been made for income from any other sources.Concessional contributions are assumed to be subject to tax at 30% in the super fund for individuals with income including concessional contributions over $300,000, and at 15% otherwise. For the purpose of this summary, no insurance premiums have been allowed for in the projected balance. It is assumed you will retire at the end of the financial year in which you reach your nominated retirement age. No allowance for potential eligibility for the Age Pension has been made. For the purposes of determining income tax and contribution caps, it is assumed that the projection is run on the first day of the financial year and that you are your current age for the entire financial year. It is assumed that you have provided your tax file number to your super fund. It is assumed your superannuation fund is a taxed accumulation fund.

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If you are setting up a salary-sacrifice arrangement it is important to remember there are limits on the amount you can contribute. Most people can contribute up to $25,000 within each tax year (July – June), including their employer's 9.5 per cent super guarantee contribution. This is called the concessional contributions cap.  For those closer to retirement the cap is higher. Check the ATO superannuation rates and thresholds for more information.

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