Superannuation for Women: What you need to know
Superannuation is actually quite straightforward, but many people struggle with understanding how it works and why it’s important.
We hear lots of clients claiming they don’t really need super – because they’ll just use the aged pension when they retire. While the aged pension does provide that support, many Australians value a broad range of leisure and recreational activities and having super saved up is a good way to ensure you’ll have the funds to have fun when you retire.
In 1992, the payment of compulsory superannuation came in. From this date, it became mandatory for all employers to pay super contributions on behalf of all eligible employees. This is called the Superannuation Guarantee Charge (SGC). However, not everyone has an employer and so it’s important for self-employed Aussies to make a conscious decision to contribute to their super on a regular basis.
So, what is superannuation?
Essentially, it’s money you & your employer put away for your retirement. The aged pension can replicate the wages you receive in your working life, and with superannuation added to this, you have a steady income stream in retirement to keep up your standard of living. When accessing your superannuation in retirement, you can take it as a lump-sum, regular payments (an income stream), or as a combination of both.
To ensure you have money for your retirement, there’s rules around accessing it. Generally, you’ll get access to your super fund once you retire or reach a certain age (this is called your preservation age). You can only access your superannuation before retirement under some specific circumstances, such as:
- Access due to severe financial hardship
- A terminal medical condition
- On compassionate grounds (including medical treatments) for yourself or your dependant
- Temporary incapacity
- Permanent incapacity
- A balance of below $200
How do you know if you’re eligible for employer superannuation contributions?
If you are:
- Over the age of 18 years old, or working more than 30 hours a week.
- You earn more than $450 per calendar month.
These are the minimum requirements for superannuation payments regardless of whether you’re employed casually, part time or full time, or a temporary resident. You may also be eligible if you are a contractor who is paid primarily for labour, even if you have an ABN (known as a deemed employee).
Your employer is required to pay your superannuation to your nominated fund each quarter – you should check this regularly to ensure it has been done and contact your employee if you haven’t been receiving the payments you’re entitled to. It can be extremely difficult to chase down unpaid super years down the line, so make sure to stay on your employer if they miss contributions.
How much superannuation will you need?
There’s no simple answer to this question, as everyone has individual personal needs, living situations, and expectations. However, the Association of Superannuation Funds of Australia (AFSA) does have some guidelines:
- A modest retirement: Receiving the aged pension with minimal superannuation; being able to afford only basic activities.
- For a single person aged around 65 years old, they estimate around $27,987 per annum.
- For a single person aged around 85 years old, they estimate around $26,609 per annum.
- For a couple aged around 65 years old, they estimate around $40,440 per annum.
- For a couple aged around 85 years old, they estimate around $38,077 per annum.
- A comfortable retirement: Receiving aged pension with plenty of superannuation income; able to afford a broad range of leisure activities, able to have a good standard of living with purchase of household and electronic goods, a reasonable car and decent clothing, able to travel domestically and occasionally internationally for holidays.
- For a single person aged around 65 years old, they estimate around $43,901 per annum.
- For a single person aged around 85 years old, they estimate around $42,065 per annum.
- For a couple aged around 65 years old, they estimate around $62,083 per annum.
- For a couple aged around 85 years old, they estimate around $58,345 per annum.
Both of these budgets assume that the retiree owns their own home outright and are relatively healthy.
Superannuation for women
It’s no secret that women often retire with far less superannuation than men. Currently, the average Australian woman retires with 35% less super than the average man. This is due to a number of factors such as:
- On average, women earn around 14% or $13,188 a year less than men, so the compulsory superannuation paid by their employers is lower. Even with the slow-decrease of the gender pay gap, women are being left behind.
- Women take time out from the workforce for maternity leave. Women are still the primary care givers during the child rearing years, and are often reduced to part time work during these years which heightens the wage disparity.
- On average, women have more casual jobs than men so many may not even meet the minimum income per month that requires employers to pay superannuation. Even for a short period of time, this adds up..or doesn’t.
- Women tend to retire earlier than men, but also tend to live, on average, 5 years longer than men. Realistically, they’re out living on the pension and superannuation longer, so starting with a lower super in the first place isn’t ideal.
- Women receive just one third of the tax concessions on their superannuation, while men take advantage of two thirds.
- Women are more likely to be dependent on the aged pension – 55.1% of all aged pensions are paid to women.
- Women are more likely to be dependent on their partners super in retirement. According to the Australian Taxation Office (ATO), in 2018/19, only 27% of female retirees reported having super as a source of income, compared with 49% of men.
- Marriage break up will also have a greater impact on women’s superannuation than that of their male counterpart.
Source – Workplace Gender Equality Agency
A majority of women will find that at least one of the factors mentioned above is reflected in their personal superannuation. So now that you know what we’re up against as women, it’s time to make changes in your own personal situation to make sure that you are not one of those statistics.
So, what can you do to improve your superannuation?
The first things to do is check for lost super.
If you’ve changed your name, moved addresses or changed jobs then you might have more than one super fund account open. Your superannuation fund will class your super as ‘lost’ if:
- They have not received a contribution or rollover amount for you in the last 5 years,
- They haven’t been able to contact you,
- They have had mail returned,
- Your account was transferred as a lost member account and no new address has been found.
To search and see if you have any lost super, you can; link your superannuation to your MyGov account and search via the online services, call the ATO on the lost super hotline on 13 28 65, or complete a paper form and lodge that with the ATO.
Once you’ve found your lost super accounts, if you had any, consolidate your super into one account.
Every super fund you have is charging you fees for managing the account and looking after your super investment. So if you have 5 different accounts, you’re being charged 5 fees for management every year.
Just like searching for your lost super, you can consolidate your super accounts through MyGov, or contact the superannuation fund of the account you’d like to keep and they can help you organise closing the others. Before closing your other accounts, make sure to do the research and ensure the fund you decide to keep works best for you. There are a number of websites that can help you compare super funds, these can be found with a quick search and will help you compare fees and investments to make a decision.
Remember: It’s common for super funds to have personal insurance policies linked. Check the funds you’re closing to make sure that if there are any insurance policies attached, you’re able to replace them before the fund is rolled over.
Once all of that is done, it’s time to add to your superannuation fund yourself.
Generally speaking, the contributions from your employer won’t be enough to fully sustain you in retirement. The earlier you start making voluntary contributions, the more you’ll be able to save. In most cases, superannuation contributions are tax deductible, so adding to your super can save you tax as well. There’s one thing you need to remember: there is a maximum amount that your super fund can receive each year in concessional contributions (tax deductible). Currently that amount is $25,000 and includes both what your employer has contributed as well as what you have contributed.
So, how do you make tax deductible contributions for your super?
The first option is salary sacrifice:
In very simple terms, this is where you ask you employer to reduce your wages and instead add that money to your superannuation fund. For example, if you were on a wage of $50,000 you could ask your employer to only pay you a wage of $40,000, and put that $10,000 into your super fund instead. Your employer is still required to pay the SGC based on your $50,000 so that you are not disadvantaged.
The second option is after-tax payments:
This is simply making payments to your superannuation account from your after-tax income (the money deposited into your account for your wages), and then claiming that contribution as a tax-deduction when you lodge your tax return. You will need to complete a form to notify your superannuation fund that you are claiming a tax deduction for the contribution. This is required because the super fund needs to deduct 15% tax on all contributions.
These 2 strategies save you tax because instead of paying tax on your income at, say 34.5%, you are only paying tax at 15%. Using the example above on the $10,000 you put into super you would save $1,950 in tax (34.5% – 15% x $10,000). That $1,950 is now in your super fund instead of the tax offices bank account and it is now earning income for you to enjoy in retirement.
Another way to get money into superannuation is make what we call non-concessional contributions. These are simply contributions that aren’t being claimed as a tax deduction. There are limits with how much this can be. Currently the limit is $100,000 per year, but you can bring forward 2 years. This way you can add $300,000 in one year, however, this means that you cannot add any further amounts for the next 2 financial years.
If you are a low to middle income earner you can also do what we call a co-contribution. This is an incentive where the government will add to your superannuation fund as long as you have made an after-tax contribution. If your income is below $38,564 for the 2019/20 year, the government will contribute 50% of the full amount of your contributions (up to a maximum of $500). If your income is below $53,564, you won’t receive the full 50%, but the government will still add to your fund if you make your own contributions.
Other options to get money into your super fund could be to make a downsizer contribution. Downsizer contributions came about from 1 July 2018 to help people who have significant amounts of money tied up in the family home and have now decided to sell that home to buy something smaller to live in during their retirement years. There are a lot of rules that need to be satisfied to make a downsizer contribution some of which are; you need to be over 65 years of age, the contribution must be no more than $300,000, and you must have owned the house for more than 10 years.
So now that you have an understanding of what and how superannuation works you need to do your homework.
- Check to see if you have lost super.
- If you have more than 1 fund, find out which one is best using a comparison website.
- Check if you need to replace your insurance policies before you close any extra funds.
- Consolidate your super funds into 1 account that meets all your needs.
- Consider how you are going to start adding to your super fund.
- Start contributing more to your retirement and have financial security!
If you want more information to help you better understand superannuation funds, insurance policies and what you can do to save for your future, give us a call. We have experienced financial advisers who can help you take a look at your finances and get yourself into a better financial position.