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How couples can bridge the super gap

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  Published: 24 Jun 2019

You could say it’s a pivotal time on the equity pay front. Recently, the news that All The Money in The World actress Michelle Williams was paid a fraction of the fee her male co-star received triggered international headlines. Lisa Wilkinson famously joined The Project at rival network Ten when Nine didn’t match the rumoured salary her male counterpart received. In 2019, women are demanding equity, including their salary figure.

But despite the media attention, the difference between men and women remains distinctly uneven when it comes to their retirement fund. The grim reality for most Australian women is they’ll retire on average with 37 per cent less superannuation than men. In fact, women consistently have a lower super balance than their male counterparts, and this declines once they start a family. Cruelly, they are more likely to retire into poverty, and a 2016 Senate report found one in three women retire with no super at all.

In 2017, the government's Workplace Gender Equality Agency said the entrenched gender pay gap was expected to remain in Australian workplaces until at least 2067. So what can couples do to mitigate this inequity while we wait for progress? How can women bridge that gap? And how can couples even up the playing field? Here are a few strategies.

Start paying attention to your super

Is your super account looking super healthy? Or super neglected? Do you even know?

Natasha Janssen, founder of Women with Cents, says the first thing people should do is log into their super account or check their latest statement.

“The best starting point is actually open up your super. Even accountants like myself just don't really look at it. It comes in the mail and gets put in the pile of papers to be dealt with later,” she says. “Find out whether you have insurance in it. How much is in there? How is the money invested? What sort of fees are you paying? Start taking an interest in those matters.”

Ms Janssen says too many women take the backseat when it comes to money, which is partly due to society’s entrenched traditional gender roles.

“I saw it with myself,” she says. “I used to be an IT expert and geek, my first qualification was in software development. I knew everything around computers, but as soon as I got into a committed relationship, somehow I've become this person that needs to get my husband's help with working the WiFi and the universal remote, and it's that learned sort of helplessness that we grow into. Finances are very much like that as well.”

She says a bout of sickness was the “wakeup call” she needed to start taking notice of her super fund and insurances, like income protection insurance.

“When you're young you think you're invincible,” she says. “It wasn't until I was in my late twenties and I suddenly got very, very sick, that I then started to pay more attention to where my super was and what insurances I had. I became a lot more hands-on.”

People who don’t take an interest in super will be further penalised when new super rules and legislation roll in on 31 October 2019, where super held in any inactive super account (i.e. no activity for at least 16 months) with a balance less than $6,000 will be transferred to the ATO. If the funds can’t be matched to your active super account, the money sits with the ATO, earning minimal interest and not growing very much. If your super has been held by the ATO, you will need to claim it via myGov.

Ms Janssen says thinking about super is “very much about that tug of war” between your present and your future self.

“The natural response is to deal with what's in front of you today and worry about tomorrow later. When I started looking at a timeline of how everything was going to play out if I stayed on the path, I got really scared. For that reason, I encourage a lot of couples and a lot of women to start paying attention to it now, because if you do it now, the small amount that you can put in can really make a big difference over time.”

Spouse contributions

When you take parental leave, it’s unlikely you’ll earn super during this time, meaning your retirement fund can fall seriously behind.

“This gap can also continue when women return to work, as they are often likely to return part-time and split their time between work and looking after the kids, meaning they are again going to be receiving less super,” says Gemma Pinnell from Industry Super Australia.

The good news is the working partner can contribute super to your account, which could benefit both of you financially.

“Depending on how much you earn and how much you and your partner already have in your super accounts, your spouse can contribute up to $3,000 a year to your super, and claim an 18 per cent tax off-set,” says Ms Pinnell. “That’s the equivalent of up to $540 back in the family pocket at tax time.”

With the 18 per cent tax claim, this is a win for both partners — more super in your account, and more money back at tax time benefiting the whole family. These payments count towards the contribution cap of the paying spouse, so if you’re making voluntary contributions to your own super, they may need to alter the percentages that go to each.

Contribution splitting

Ms Pinnell says contributional splitting is an essential strategy for young couples, especially for young couples whose super balance might one day hit $1.6 million, which is the transfer balance cap amount.

“While we know most people don’t want to think about super until they are staring down that retirement barrel, contribution splitting is actually a great idea for young couples, as it evens out that gap between your balances early on,” she says.

Concessional contributions

Bianca Hartge-Hazelman, the brains behind women’s money site Financy, says pre-paying super ahead of taking a career break is an option for people who have the financial capacity to top up their super.

“Once you have an amount and the pre-payment timeframe in mind, such as six months before a baby is due, ask your employer to increase the salary sacrifice amount to a level that you are comfortable with. The concessional contributions cap for the 2019-2020 financial year is $25,000 per year,” she says.

Before-tax contributions made to a super fund are taxed at a lower (concessional) rate of tax. The tax rate depends on your income plus your before-tax super contributions. Generally, if your income plus super contributions are under $250,000 p.a. you pay 15 per cent tax, and 30 per cent for incomes over $250,000 p.a.

She says it’s also worth discussing with your employer whether they’ll continue to pay employee superannuation on parental leave.

“While many employers are increasingly paying superannuation on the paid and unpaid portions of parental leave, the vast majority do not, and it’s not mandatory for them to do so. That said, it’s worth talking to your employer,” she says.

Ms Hartge-Hazelman says employees can also check whether they have any unused concessional super contributions.

“From July 2018, a new measure kicked in which allows for unused concessional super contributions to be accumulated over five years provided the individual’s total super balance is less than $500,000,” she says. “Once again the annual limit on concessional contributions is $25,000. In this case, individuals can make use of up to five years of previously unused contributions. This measure could help women returning to the workforce after career breaks to have children, giving them the ability to “catch-up” on super by making higher concessional contributions without breaching the annual cap.”

Government co-contribution

H&R Block's Mark Chapman says equity between genders' super isn’t really a tax issue.

“Primarily, it’s about ensuring both partners in a couple have a sufficient retirement fund to maintain a reasonable standard of living if something goes wrong, like relationship breakdown or the death of a spouse,” he says.

But there are incentives for making extra contributions to their superannuation fund out of after-tax income.
“To help you save for retirement, the government has an incentive program that rewards low and middle-income earners for making extra contributions to their superannuation fund out of after-tax income,” he says.

Regardless of what your regular full-time salary is, on paid parental leave you're probably earning what's considered a "low income".

“So if your total income for the year does not exceed $37,697, the government will match your eligible superannuation contributions by 50 cents per dollar up to a maximum of $500 per annum,” Mr Chapman says. “The incentive is available above that income level but tapers out the more you earn and disappears altogether if you earn more than $52,697.”

The optimal contribution is $1,000 because you will receive the most significant amount from the government, which is $500.

Additionally, if you earn less than $37,000 a year, you could receive a refund of the tax paid on your concessional super contributions, up to a maximum of $500 per year, which is paid directly into your super account. Concessional contributions include your employer’s superannuation guarantee (SG), salary sacrifice and personal deductible contributions.

Find lost super and consolidate

Some 5.92 million Aussies have more than one super account, potentially resulting in multiple administrative fees and numerous insurance policies eating into retirement savings. You can check the ATO website to see whether you are among that cohort and it's straightforward either via your fund or ATO website to consolidate your super funds.

Ms Pinnell says it’s worth getting the full picture before making that decision.

“Before consolidating it’s important to consider what fund to consolidate into — it might not necessarily be the fund with the largest account balance,” she says. “If you have insurance on different super accounts, you will see that the policies vary, and one of these might be more suitable to your needs than others.”

She says it can be a good idea to discuss with your potential new fund your ability to get insurance, including what you would be covered for in your current situation. The level of insurance you’re offered might be dependant on whether you have a partner, kids or debt.

If you wish to claim a tax deduction for personal super contributions, you must lodge a notice of intent to claim a tax deduction with your original fund, before you roll your super funds into one.

This article was first published on on 24 June 2019. The information referred to may change from the date of publication and care should be taken when relying on such information.

*The above material, whilst correct at the time of publication may include references or statements which are no longer current.

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