How women can maximise their superannuation
Posted by Northadvisory on November 25, 2020
It’s no secret that women retire with less super on average than men. In fact, more than 80% of women are currently retiring with insufficient superannuation savings to fund a comfortable lifestyle.
We also know that women are more likely to take time out of the workforce to care for family and are more likely to be in part-time or lower paid employment. Women also are less likely on average to receive the benefit of contributions above the compulsory Superannuation Guarantee rate.
With all of this in mind, there can be a cause for concern for women when looking at the stability and longevity of their retirement funds. But no matter what the circumstances are, it’s vital that women take simple, but concrete, steps to help maximise their superannuation.
The numbers behind women in super
Although the gender pay gap is decreasing in 2020, the super gap between men and women still exists. According to Women in Super, women currently retire with 47% less superannuation than men and only receive a third of the government tax concessions on super.
The current 9.5% Superannuation Guarantee rate does not enable most women to accrue sufficient savings for a comfortable retirement. In fact, an estimated 220,000 women miss out on $125 million of superannuation contributions as they do not meet the requirement to earn $450 per month (before tax) from one employer (as many women work more than one part-time job).
But the issue isn’t just about the super gap between men and women. The numbers also show that women fall behind men in terms of confidence in their retirement planning.
According to the Qantas Super CSBA Retirement Confidence Index:
- Only 30% of women have a high degree of confidence that they will have enough money for a comfortable retirement
- Only 29% of women know how much is needed for a comfortable retirement
- Only 28% of women feel they can rely on their superannuation and other investments for retirement.
So, while the odds of the gender pay gap are stacked against them, there is still significant action that women can take to improve their retirement prospects.
Simple and effective strategies
There are some simple steps you can take to maximise your superannuation, regardless of your situation. These include:
- Consolidate into one fund. Consolidating your accounts and/or tracking down your lost or unclaimed super could save you thousands of dollars in unnecessary super fund administration fees, which over time can make a massive difference to your retirement savings. You can check the Australian Securities and Investment Commission (ASIC) MoneySmart tool for finding unclaimed money, in case you’ve lost track over the years.
- Check if you’re eligible for the Government Co-Contribution. If you earn less than $50,454 before tax, you may be eligible for a government co-contribution to your super if you make an after-tax contribution yourself.
- Take active control. While this may sound obvious, many people treat superannuation as ‘out of sight, out of mind’. But when you take an active interest in how your super is performing and what you are entitled to top it up by annually, you can really start to make a difference to what you’ll accumulate by the time of retirement.
However, every woman’s superannuation situation is different. And depending on your age, financial situation and career, you may benefit from certain strategies to help maximise your super.
For younger women, when retirement is still 30 or 40 years away, super can seem too hard or too boring to contemplate.
But ignoring super now can cost you dearly at retirement.
If you earn good money and plan to take maternity leave or time out of the workforce for any reason, consider putting a little extra into your super now to make up for future lost earnings.
Your partner may also be able to top up your super while your income is low or non-existent. If you earn less than $37,000, your other half can contribute to your super and claim a tax offset of up to $540. The offset phases out once you earn $40,000 or more. This is called spouse contribution splitting but it is open to married, de facto and same sex couples.
Speak with your employer about directing some of your pre-tax salary into super. These ‘salary sacrifice’ contributions are taxed at the concessional super rate of 15% (30% if you earn over $250,000) instead of your marginal tax rate.
When you finally retire, you can withdraw your money tax free. Just remember to stay within your concessional contributions cap of $25,000 a year, which includes compulsory SG payments made by your employer.
And thanks to the magic of compound interest, even small amounts of money invested early can make a big difference in the long run. When your budget allows, consider putting a little extra in super.
You can make a tax-deductible contribution up to the $25,000 annual concessional cap, but be aware that this cap includes employer contributions and salary sacrifice.
You can also contribute up to $100,000 a year after tax or $300,000 in any three-year period. You can’t claim it as a tax deduction, but earnings on your savings will be taxed at the super rate of 15% rather than your marginal rate and you can withdraw the money tax free in retirement.
Women nearing retirement
Once you turn 50, the reality hits that retirement is not far off. If you want to retire with enough money to live well, your super may need more funds.
This may be easier to manage now if your kids are adults, your home is paid off or close to it, and you have more disposable income.
Whatever your situation, any extra attention you can give your super will improve your level of comfort in retirement.
New rules provide an opportunity for low-income earners or anyone who has taken time out of the workforce to make additional super contributions at concessional rates.
From 1 July 2018, you can carry forward unused concessional contributions for up to five years, provided your super balance was under $500,000 on June 30 in the year before you make any additional contributions. As well as boosting your retirement savings, any voluntary concessional contributions you make are tax deductible, so make the most of this opportunity.
You could also tip some of the proceeds from the sale of your family home into super. This could suit singles or couples who plan to downsize to a smaller home.
If you are 65 or older, you may be able to make a downsizer contribution to your super of up to $300,000 from the proceeds of selling your home. Couples could contribute up to $600,000. This will not count towards your concessional or non-concessional contribution caps. It can only be used once, it is not tax deductible and it will count towards your eligibility for the Age Pension.
Discussing your superannuation situation with a financial advisor can help you find effective strategies. If you would like to find out how the team at North Advisory can help you, please contact us today.