Being a parent is hard (unpaid) work, so chances are that if you’re dedicating yourself full time to the task, then you’re not thinking about adding to your super balance.
Ninety seven percent of stay at home parents are women and in Australia you do not earn superannuation if you are out of the workforce caring for others.
The long stretches out of the workforce that many women take to look after children is a leading cause of the super gap between men and women. As a result, women are retiring with close to half the super of men and one in three Australian women retire with no superannuation at all.
Verve Super’s recent Make Our Future Fair Report, showed that women living in partnerships who take time out of the workforce to care for children still want to retire with financial independence. At the same time there are more women today having children without a partner than ever before – if you’re in this category preparing for retirement is even more important.
Verve has laid out five key policy changes that could help create a fairer retirement system for women and anyone who takes significant time out of the workforce to care. In the meantime, with some planning and communication with your partner (if you have one), there are ways to build your super balance while you’re out of the paid workforce caring for others.
How your partner can contribute to your super?
There are two ways your partner can contribute to your super. The first is called ‘contribution splitting’. This is when before tax contributions, such as payments made by an employer, are directly transferred from your spouse or partner’s super account into your super account.
The second is known as a ‘spousal contribution’. This is when your spouse or partner makes a personal after-tax contribution directly into your super.
Why not split it?
Contribution splitting is great if you take time out of the workforce and don’t want to be reliant on your partner’s income in retirement. There can also be some good tax benefits of splitting super.
Splitting contributions simply means the working partner ‘splits’ their super with the partner staying home.
But why would you do this if you plan to be together when you both retire? It really depends on how you want to make retirement fair in your relationship. Contribution splitting upfront is a simple way of continuing to build your super independently. This widely underutilised strategy could help you mitigate the impact of career breaks and capitalise on the magic of compound interest in the long term.
Take Emily and Jonas for example — they have just welcomed the birth of their first child. Emily has decided to stay home for 12 months to care for the baby and Jonas continued to work full-time. At the end of their child’s first year of life, Emily returns to work, but the couple agrees to split Jonas’ super contributions, from that year, between both of their accounts.
What you need to know about contribution splitting:
- The partner splitting the contribution will need to complete a contribution splitting form and submit it to their superannuation fund.
- You do not need to be married to split contributions, however, you need to either be registered as a couple in your State or Territory or considered ‘de facto’.
- The maximum amount that can be split is the lesser of:
- 85% of your concessional (before tax) contributions for the financial year; or
- $25,000, which is the concessional contributions cap for one financial year.
- If you are applying to split contributions in the 2019–20 financial year, the super contributions to be split must have been made on, or after, 1 July 2019.
Employers often make incremental contributions to your super throughout the year, but you can only split it once, at the end of the period.
- Employers often make incremental contributions to your super throughout the year, but you can only split it once, at the end of the period
- Some public sector schemes do not offer contribution splitting.
- The partner receiving the contributions must be younger than ‘preservation age’ (the age you can access your super, so basically younger than about 60 years old). The age of the person splitting their super is not relevant.
- Make additional personal or spousal contributions
Before-tax (concessional) personal contributions
If you’re earning $37,000 or less per annum, you may be eligible for a low-income super tax offset (LISTO) from the Government.
The LISTO is 15% of the before-tax super contributions you or your employer pays into your super account. This could mean an up to an additional $500 a year straight into your super account. You don’t need to do anything; other than to make sure that your super fund has your Tax File Number – without your TFN, your super fund can’t accept a LISTO payment. The ATO will work out your eligibility and pay your low-income super tax offset directly into your super account.
Before-tax or concessional contributions are capped at $25,000 annually. If you’re not sure how to make personal contributions, or the difference between concessional and non-concessional contributions, we explain all the ins and outs here: The time is now – how to top up your super.
After-tax (non-concessional) personal or spousal contributions
You may also choose to make non-tax-deductible contributions, known as non-concessional contributions, which are capped at a total of $100,000 per financial year.
While you cannot claim a tax deduction for are non-concessional contributions; if your partner makes a payment as a ‘spousal contribution’, they may be eligible for a tax offset. A spousal or partner contribution of $3,000 will allow your partner to claim the maximum tax offset of $540, provided you earn less than $37,000 per annum. The tax offset only applies if your partners’ total super balance is no more than $1.6 million, you are both Australian residents and you have not exceeded the non-concessional contributions cap of $100,000 for that year.
To learn more about splitting super contributions and ways to boost your super, MoneySmart is a great place to start. We also love this from a friend of Verve, the legendary Jane Caro, who explains how she and her husband split their super contributions. Watch here as part of ASIC’s MoneySmart Women talk money video series. And, for more inspiration, watch the conversation between Verve CEO, Christina, and Jane Caro where she talks about the importance of building your own personal financial independence.
How do we change the system?
At Verve we recently launched the Make Our Future Fair campaign demanding that the government set a timeline and a target for closing the retirement gap. Making the system fairer for stay at home parents and caretakers will require policy and systems change to the superannuation. You can add your voice to Verve’s Make Our Future Fair campaign.