24 June 2022
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 $13.8 billion in lost and unclaimed super as of June 20201.
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.
Before combining your super, ask your other super provider about any fees or charges that may apply, and other information about the effect this transfer may have on your benefits, such as insurance cover.
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.
In some circumstances, insurance cover linked to your super will lapse if there are no contributions for 16 months 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.
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. Before adding to your super, consider your financial circumstances, contribution caps that may apply, and tax issues.
Salary sacrificing isn’t for everyone and may affect some Government benefits and employee benefits. Consider getting financial advice before deciding if a salary sacrifice arrangement is right for you.
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 your yearly income is less than $57,016 (before tax, for the financial year of 2022-2023), and you meet the eligibility criteria, the Government will match up to 50 cents for every $1 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.
6. Consider spouse 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 spouse3. It’s not all for you – this might also benefit them too. Depending on your income, your spouse could be eligible for a tax offset.
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 10.5% 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.
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.
1. ATO data as at 30 June 2020
2. ATO – Inactive low-balance super accounts
3. Before adding to your super, consider your financial circumstances, contribution caps that may apply, and tax issues. We recommend you consider seeking financial advice.