Super tips for a career break

It’s often said that a change is as good as a holiday, and a period of extended leave will certainly offer a change. If you're planning a career break - or are already on one, then you may also be facing a change to your income. Whether you plan to travel, are taking a break for family reasons, or just want a break from the 9 - 5, consider your super when you're thinking about your finances.

Making the decision to take time out from the workforce is never done lightly, but stepping out of your usual work environment, whether that’s to travel, do something completely unrelated to your ‘normal’ career or to temporarily stop working, can be very refreshing.

In most cases this could impact the amount of money you earn and therefore, your super balance. Consider putting some plans in place to ensure your super doesn’t stop working for you in the background. After all, retirement is the ultimate career break!

 

6 super tips if you’re planning a career break



1. Locate and combine all of your super – before or during your career break

Do you know how many super accounts you have? If you’ve had more than one job, you could have ‘lost’ super. According to the Australian Tax Office (ATO), Australians had amassed almost $20.8 billion in lost and unclaimed super as of November 20191.

Before taking time off work, or even while you’re on your break, it’s a good idea to consider putting all of your super in one place. It could help you save on fees, avoid duplicate insurance policies, and make it easier to manage your super. It’s also an easy way to top up your super while you’re taking a break from work and your contributions are likely to reduce or stop.

 

2. Find any lost super

Doing a simple super search could help track down any money that belongs to you. You can find any lost super you may have using the ATO online services through myGov. Alternatively, if you’re an AustralianSuper member – and give the Fund consent to use your Tax File Number (TFN) – we can help track down your lost super.

 

3. Combine your super into one account

If you find lost super, you might want to consider combining those accounts into one. By doing this, you can save on fees that might be eating away at a balance not being topped up by employer super contributions. You can also avoid potential duplicate insurance policies.  

Before making a decision to combine multiple funds, look out for any fees or charges that may apply for closing an account. Make sure you also understand the impact of combining your accounts on any additional benefits, such as insurance.

 

FIND AND CONSOLIDATE YOUR SUPER NOW

 

In some circumstances, insurance cover linked to your super will lapse if there are no contributions and your account falls below $6,0002. Be sure to have a look at the insurance cover you have through your super, as well as check any special conditions that might apply if you’re off work.

LEARN MORE: INSURANCE THROUGH AUSTRALIANSUPER

 

4. Try to make up for lost time

Whether your career break was planned or otherwise, consider the following points to give your super a boost.

Add to your super by salary sacrificing

For many people, taking a career break can mean your income is reduced. And often, any super contributions you receive are also reduced as a result. To help compensate for this dip in income, consider making extra contributions towards your super – by salary sacrificing – before you take time off. Or, if you’re already on a career break, consider salary sacrificing when you return to work to make up for it.

When you ‘sacrifice’ some of your salary, you make an agreement with your employer to pay this amount straight into your super account instead of your bank account. It will mean a little less take-home pay, but it could have a significant impact on your super balance when you retire.

Salary sacrificing could also reduce your taxable income, which means you might even pay less at tax time. There’s a maximum amount of money that you can contribute to super annually (and for certain types of contributions, a lifetime maximum).

For more information, check out AustralianSuper’s guide to super contribution limits now.

Salary sacrificing isn’t for everyone, so it’s important to carefully consider the pros and cons.

FIND OUT MORE: SALARY SACRIFICING

Case study: How salary sacrificing works for Emily

Emily is planning to take a year off work to travel around Europe. During this time, her employer super contributions will stop as she won’t have a job in Australia.

In the year leading up to her trip, Emily decides to make voluntary contributions to her super. She reviews her finances and decides she can afford to make before-tax voluntary super contributions (salary sacrifice). She ‘sacrifices’ $10,000 of her $90,000 salary towards her super in the year leading up to her trip.

This contribution will immediately benefit Emily's super balance and help bridge the gap in super payments she’ll miss out on while she’s away.

In the year she makes the salary sacrifice, her take-home pay will reduce by $6,550, but she will save $3,450 in tax (on her income and super) and contribute an extra $8,500 to her super.

See the table below for a breakdown of how Emily’s super balance would look with and without the salary sacrifice.

 

Emily’s income Without salary sacrifice With salary sacrifice
Salary $90,000 $90,000
Minus salary sacrifice to super   $0 $10,000
Minus tax and Medicare levy $22,067 $18,617
Take home pay $67,933 $61,383
Contributions to super    
Employer super contribution (Super Guarantee) $8,550 $8,550
Plus salary sacrifice $0 $10,000
Minus contributions tax $1,282 $2,782  
Net super contributions $7,268 $15,768

The above information gives you an idea of how salary sacrifice might help you continue to save and boost your retirement savings, while taking a break from work. In order to provide these calculations, the following assumptions were made:

  • Marginal income tax rates for 2018/2019
  • Medicare Levy of 2%
  • Ignores administration fees and insurance premiums
  • Employer super contributions (Super Guarantee) of 9.5% remain the same both with and without the salary sacrifice arrangement.
When making personal super contributions it’s important to consider your financial situation, particularly any level of debt you may have.

 

5. Make the most of government assistance 

If you’re already on a career break, you’re probably earning less than what you normally would. Because of this, you may be eligible for a super co-contribution from the Australian Government.

If you have a yearly income of less than $53,564 (before tax, for the financial year of 2019-2020, and you meet the eligibility criteria, the Government will match 50 cents for every $1 that you add to your super from your after-tax income up to a maximum. This could mean up to a $500 contribution from the Government. The amount depends on your income. This co-contribution gets paid directly into your super account after you’ve lodged your tax return for that year.     

READ MORE: MAKING AFTER-TAX CONTRIBUTIONS

 

Government super co-contribution income thresholds

 YOUR TOTAL INCOME* YOUR CONTRIBUTION CO-CONTRIBUTION
$39,837 $1,000 $500
$45,837 $600 $300
$51,837 $200 $100
$54,837 Any amount $0
Source: ATO – Co-contributionincome thresholds
* Total Income: Assessable income, plus reportable employer super contributions, plus reportable fringe benefits for the 20/21 financial year.

 

6. Consider spousal contributions 

If you have a partner who will continue to work while you take a career break, there are a few options that might allow you to keep contributing to your retirement savings.

While you can’t combine your superannuation with your partner’s, you may be able to grow your super balance with after-tax contributions from your spouse. It’s not all for you – this might also benefit them too. If you’re earning less than $40,000 income during the financial year, your spouse may be eligible for a tax rebate of up to $540.

 

Split a super contribution

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 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 can both potentially offset some of the contributions you’ll be missing while you’re taking a break.

FIND OUT MORE: ADDING TO YOUR PARTNER’S SUPER

 

Think ahead – for both before and after your career break

Preparing for a career break can help give you peace of mind that you’re still working towards achieving your best possible retirement, even during your time away from work. Finding ways to contribute to your super before and during your break can keep your balance growing while you’re not receiving employer super contributions. When you’re looking into what a career break might mean for your financial future, make sure super is part of the equation.

It’s also important to remember, if you’re starting a new job when you come back from your break – you should let your new employer know about your super account.

TELL YOUR EMPLOYER ABOUT YOUR SUPER

 

 

Sources:
1. ATO - The-race-is-on-to-find-$20-8-billion-in-super (Nov 2019)
2. ATO – Inactive low-balance super accounts

This information may be general financial advice which doesn’t take into account your personal objectives, situation or needs.  Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. 


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