Ladies, it’s time to talk – about money. Your money. Specifically, your superannuation money.
To start the conversation, however, brace yourself: we have a little tough love to share and it’s not pretty.
Generally speaking, women are behind men when it comes to their super savings. And when we say behind, it’s way behind. Women have about 26% less in their super at 65, compared with men.1 While that gap has closed in recent years, that’s a whole lot of lifestyle to be missing out on.
The good news is there are things you can do to help even out the score. But first, let’s have a look at some of the reasons why there’s such a big super gap. And you’ve probably already guessed that one of the culprits is that other gap: the gender pay gap.
Lower average incomes, less time in the paid workforce, and more women than men working part-time or in less secure industries are some of the big factors that affect women’s super fund savings. The good news is that the wage experts and economists identified these factors several decades ago and the gaps are closing. But these big-picture solutions – such as gender equality, equal pay and more equal family caring duties – still haven’t caught up with women’s pay packets or their super funds.
So let’s talk about a little self-love for those who might want to boost their super savings until the cultural and workplace reforms catch up.
And just one more quick reminder about the importance of a healthy super balance: on average, women live about four years longer than men.2 If one gender needed more in their super than another, it would have to be women.
Okay, here are a few suggestions to help you start thinking about how to close the gap.
According to ASIC’s Moneysmart Superannuation Calculator (and based on all the assumptions ASIC has inbuilt into that calculator), by carving out $20 per week pre-tax via salary sacrificing when you’re 20 could mean $70K or more extra at 67. 3 Remember though, once you put the money into your super, it’s not readily accessible again. You’d need to fulfil the “conditions of release” of your super fund, and early withdrawals could attract tax. 4
Contributing to your super can be done in two ways: either before tax or after tax. If it’s before tax, it’s known as concessional contributions, or salary sacrifice, and often also means you can pay less tax, provided your total concessional contributions are within the concessional contribution cap per financial year and the funds are retained in super till retirement. For 2020/21 that cap is $25k. From 2021/22 onwards its $27.5k. For more information on the concessional contribution cap limits, head to the ATO.
Or you can make extra deposits with money you’ve already paid tax on or from your after-tax take-home pay or things like windfalls. These are known as non-concessional contributions. There’s also a cap limit for the 2020/21 financial year on these after-tax contributions. Provided your total super balance is less than $1.6 million and you are under 65 years old, that cap is $100k. From 2021/22, your total super balance must be less than $1.7 million and you are still under 65 years old, the cap increases to $110k. You can still make non-concessional contributions if you’re between 65 and 74 years of age and have less than the capped balance, but you will have to satisfy the work test each year you want to make these contributions. You also have the ability to make more non-concessional contributions under the Bring Forward Rule. So it’s worth understanding these caps a little more by reading relevant information on the ATO website.
Sharing the spoils
If you have a partner or spouse, they can also deposit pre-tax money into your super fund by splitting some of their contributions to you – but, again, make sure these contributions don’t make you go over the concessional contribution cap limits we mentioned earlier.
However, deposits can still be made into a partner’s super fund at almost any time from after-tax money to help close the gap between a high income earner and a lower income earner. Parents and grandparents might also consider contributing after-tax money to the super funds of younger family members to help boost their family’s long-term savings. Similar to the above, be mindful of the non-concessional contribution cap limits.
Tax and super
And just a final reminder as we head towards the end of the financial year. Are you earning up to $54,837 p.a. for the 2020/21 financial year? You may also be entitled to a government co-contribution of up to $500 each. The amount of the government super co-contribution will depend on a person’s income (inclusive of employer super at 9.5% p.a.) and the amount of additional super contributions the person makes. The income threshold changes as of 1 July 2021 to $56,112. Check out the ATO website for more info and eligibility. The ATO also has a co-contribution calculator.
Which brings us to the final point for today. It’s almost tax return time, so now may be a good time to check that your super fund has your tax file number. Because if your super fund doesn’t have your tax file number, the government co-contribution of up to $500 can’t be paid into your super account.
Five reminders to help you close the super gap:
- Extra contributions to your super fund could potentially add up to tens of thousands of dollars by the time you retire, assuming you comply with the requirements like caps and eligibility criteria when you make the additional contributions and the funds are retained in your super account for the long-term. ASIC has a great superannuation calculator on its Moneysmart website that you can play around with to work out how much you could be adding to your retirement. The calculator does contain parameters and is based on certain assumptions and disclaimers. Please make sure you understand these when using these sort of online calculator tools.
- Salary sacrificing extra contributions can be a good way to increase your super savings and could reduce your tax, but make sure your total super concessional contributions are within the concessional contribution cap. More info here.
- Spouses, partners, friends and family can contribute extra money towards your superannuation.
- Regardless of what sort of contribution is being paid into your super account, just make sure you’ve checked the ATO website for concessional and non-concessional contribution caps, eligibility and other requirements.
- Those earning up to $54,837 p.a. may be eligible for the government super co-contribution of up to $500 when they make additional concessional contributions. The government co-contribution can be paid straight into your super account if you have provided your super fund with your tax file number. The ATO will calculate the amount of the co-contribution based on the financial information you file in your tax return. Check out the ATO website for more info on whether you’re eligible.
If you need assistance with your superannuation, consider speaking to a financial adviser.
Did you know we can help you get started? Call an ING super specialist on 133 464 between 8am and 8pm Monday to Friday (Sydney time) to find out more.
- ASFA Economic Snapshot: Women and superannuation (Released 26 March 2021) – https://www.superannuation.asn.au/ArticleDocuments/1469/210326-ASFA_Economic_Snapshot.pdf.aspx
- Life tables (released 4/11/2020) https://www.abs.gov.au/statistics/people/population/life-tables/latest-release#:~:text=Life%20expectancy%20at%20birth%20was%3A,Australian%20males%20and%20females%20overall
- Using the Moneysmart super calculation and with assumption based on: 20-year-old with an annual $30K salary (before tax and super), retiring at 67, with an existing super balance of $10,000 balance, employer superannuation rate at 9.5% super at the start but will increase by 0.5% from 1 July 2021 until the superannuation guarantee rate reaches and stays at 12% from 1 July 2025 onwards, making additional concessional contributions of $25 a week. It is assumed there are no withdrawals made from the superannuation account and the employer and voluntary contributions will increase with inflation; also the total contributions are before tax contribution and do not exceed the concessional contribution cap, with the tax on these before tax contributions set at 15%. Based on ASIC’s default parameters which include by are not limited to an admin fee of $74 p.a., no contribution fees and indirect costs ratio of 0% insurance premium of $214 p.a. (which will increase with inflation each year) and default investment option (with return rate of 7.5% p.a., tax on earnings at 7% p.a. and investment fees at 0.85% p.a.).All figures are rounded (to nearest thousand) and in today’s dollars adjusting for inflation at 2.5% p.a. and additional rise in living standards at 1.5% p.a. These examples are for illustration purposes only and are not guaranteed. Actual outcomes may differ. Investments may go up or down. All ASIC’s assumptions on its calculator are available on its website.
- With all contributions, the funds can only be accessed if you met the superannuation release requirements. Therefore if you make a withdrawal from your super account prior to retirement age and the withdrawal is from the concessional contributions (like employer contributions, salary sacrifice or voluntary concessional contributions), this will be taxable at the time the withdrawal is made. There may also be fees incurred when withdrawals are made and other conditions or requirement. You should review the terms and conditions of your superannuation account to ensure you understand all the implications of making contributions, withdrawals, the fees and costs, plus any relevant conditions and requirements.
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