- Before you go
- Finding your super
- Getting extra contributions
- Super as a partnership
- Wrap up
Considering time off from the workforce?
Maybe you’re considering taking a break from full-time work because your family is growing. Or you might be taking time out to improve your skills or change jobs. Maybe a hobby or side hustle is turning into a small business. No matter why you’re putting your current career on pause, there are a range of ways you can help your super keep working while you’re on a break.
Preparing your super before taking a break
Making the decision to take time out from the workforce is never one made lightly. There is a lot to consider, but putting in the savings hard yards now can make things much easier in the long run.
If you can afford to contribute an additional amount towards your super prior to taking time off, it’s one great way to help make up for those times your contributions will be lower or stop completely. One way to do this is through salary sacrificing.
When you “sacrifice” some of your salary, you make an agreement with your employer to pay it straight into your super account instead of your bank account. This could reduce your taxable income too, which means you’ll pay less at tax time. When you take a career break, you need to mindful of the fact that you might be facing a period of not having the money to contribute to your super, and money you put into super now can help make up for that.
Salary sacrificing isn’t for everyone, so it’s important to carefully consider the pros and cons.
Find more information about salary sacrificing
It also pays to note there is a maximum amount that you can contribute to super annually, and in the case of certain types of contributions, over your lifetime.
Check out our guide to contribution caps.
See how salary sacrificing works
Emily is taking a year off work to travel around Europe. During this time, her super payments from her employer will stop. She wants to add more to her super in the year leading up to her career break, and decides she can afford to sacrifice $6000 of her $90000 salary towards her super in the year leading up to her trip.
This will immediately benefit Emily's super balance, and will help bridge the gap in super payments she will miss out on while she is away. In the year she makes the salary sacrifice, her take-home pay will reduce by $3795, she will save $1305 in tax (on her income and super) and she will contribute an extra $5100 to her super.
Here’s how Emily’s super balance would look with and without the salary sacrifice.
Without salary sacrifice With salary sacrifice Salary
$90,000 Less salary sacrifice to super $0 $6,000 Less tax + Medicare Levy $22,732 $20,527 Take home pay $67,268 $63,473 Contributions to super Super Guarantee contributions $8,550 $8,550 Plus salary sacrifice contributions $0 $6,000 Less contributions tax $1,282 $2,183 Net super contributions $7,268 $12,368
The above information is provided to give you an idea of how a salary sacrifice arrangement might help you continue to save and boost your retirement savings whilst taking a break from work. In order to provide these calculations, we made the following assumptions:
- ● 2017/2018 marginal tax rates
- ● Medicare Levy of 2%
- ● Ignores administration fees and insurance premiums
- ● Super Guarantee contributions of 9.5% remain the same both with and without the salary sacrifice arrangement
When making any contributions to your super it is important to consider your personal financial situation, particularly any level of debt you may have.
Locate all your super before taking a break
Do you know how many super accounts you have? Could there be lost super out there in your name? According to the ATO, Australians had amassed almost $18 billion in lost super as of June 30 20171.
Before taking time off work, it’s a good idea to consider putting all of your super in one place. It could help you save on fees and make it easier to manage your super, especially during the time where you’re taking a break from work and your contributions are likely to reduce or stop.
If you’ve had more than one job, there’s a chance you’ve got accounts with more than one fund, and doing a simple super search could help track down any money that belongs to you.
If you find lost super that’s in your name, you might want to consider combining those accounts into one. Before making a decision to combine multiple funds you may have, look out for any fees or charges that may apply for closing an account, and make sure you understand the impact of combining your accounts on additional benefits like insurance.
In some circumstances, insurance cover linked to your super will lapse if there are no contributions or if that account falls below a specified balance threshold. Be sure to have a look at the insurance cover you have through your super as well as checking any special conditions that apply whilst on leave.
Learn more about insurance through AustralianSuper.1 Find more information here
See if you are eligible for extra super from the government
The Australian Government makes co-contributions to help low and middle-income earners to boost their retirement savings. These co-contributions can also help before you retire, so it’s worth checking if you’re eligible to receive them while you’re taking a break.
If your income for the year is less than $52,697 (before tax) and you meet the eligibility criteria, the government will match 50 cents per $1 that you add to your super from your after-tax income, to a maximum of $500 for a $1,000 contribution in the FY19 financial year. The maximum matched depends on your income. This co-contribution gets paid directly into your super account after you’ve lodged your tax return for that year, as long as your super fund has your TFN.
Read more about the government co-contribution
|YOUR TOTAL INCOME#||YOUR CONTRIBUTION||CO-CONTRIBUTION|
|$52,697 or more||Any amount||$0|
Discuss your options with your partner
If you have a partner, and they’re going to continue working while you take a break, consider some of the available options that allow you to keep contributing to your future.
You can’t combine your superannuation with your partner’s, but you may be able to maximise your balance with spouse contributions, giving your partner a tax rebate of up to $540, if you are earning less than $40,000 income during the financial year.
There’s also the possibility of using contribution splitting, a method of adding to your superannuation that allows your partner to transfer some of their before-tax super amount into your account. The super they transfer to you must be from a before-tax source. That means super added to their account by their employer, either as part of their 9.5% Super Guarantee or via a salary sacrifice arrangement.
You’ll need to make sure you’re eligible to use either of these strategies, but they’re both worth exploring as options to offset some of the contributions you’ll be missing while you’re taking a break.
Learn more about adding to your partner’s super.
A note for those taking time off
Planning ahead for a career break can help give you peace of mind during your time away from work. Finding ways to contribute to your super before or during your break can keep your balance growing while you’re not receiving contributions from your employer. When you’re looking into what a career break might mean for your financial future, make super is part of the equation.