How to be A Super Woman
"Women fall well short of their male counterparts in terms of superannuation savings."
We identify those superannuation strategies that can help women improve their super balance, taking advantage of the recently introduced super reforms. These are great strategies for all women (or the wonderful women in your life, wives, daughters, sisters & mothers - for all those men reading this article too!).
Women traditionally can be inclined to be the ‘over-achiever’ when it comes to running their family affairs, juggling a career, running a household, looking after children & elderly family members and community. All of this often culminates on focusing on everyone else and not themselves (I know I’m preaching to the converted here, nothing you don’t know)... this, however, includes not saving/investing for the long term and your retirement. The latest statistics from the Australian Tax Office (ATO) show women fall well short of their male counterparts in terms of superannuation savings.
Today, women at retirement age (assumed to be age 55 to 64) have an average super balance of $96,011 whilst their male counterparts are retiring with approx. $270,000* in super, and this doesn’t include the approximate large group of women of this age bracket who will retire without any super at all. This speaks to the generational change of mandatory superannuation by employers, and the likelihood of those in the age demographic to take time out of the workforce to raise families or to work in casual or unpaid work. For the younger members reading this, this might be passed off as only a concern for the baby boomers, as you’ve always been employed with a Super Guarantee. The revelation, however, is often that the same issues still prevail, women taking time out of the workforce even if only for a year or two can have a significant long term flow-on effect for your end super balance. All things considered (i.e. maternity leave, part-time or casual work due to family commitments, gender pay gap), the flow-on effect to the compounding strength of a superannuation balance is significant. If we then consider that the latest statistics show, women are living longer than men, there is a quantifiable need for a higher super balance than our male counterparts.
Despite all of these hurdles, all is not lost, there is always something that you can do that can make a difference, no matter where you are on your financial journey. The big key is the earlier you start the less you will have to contribute (long term) to boost your super. Women can also improve their retirement balances by implementing simple things such as understanding where and how their super money is invested, save by making extra contributions if possible, no matter how small, and consolidating multiple super accounts to save on fees.
The Federal Government has attempted to address some of the issues by introducing measures as part of the superannuation reforms introduced from 1 July 2017. Some of these measures include raising income thresholds for tax offsets in relation to spouse superannuation contributions and allowing employees to make tax-deductible contributions. Additionally, from 1 July 2018 individuals who have irregular working hours will have the ability to 'catch up' on unused concessional contributions.
- Raising income thresholds for tax offsets in relation to spouse superannuation contributions.
- Allowing employees to make tax-deductible contributions.
- From 1 July 2018, individuals who have irregular working hours will have the ability to 'catch up' on unused concessional contributions.
Spouse Super Contributions & Low Income Refunds
A tax rebate of up to $540 may be payable if your spouse makes a superannuation contribution of up to $3,000 on your behalf into your fund. The rebate is available if you, as the receiving spouse, earn less than $37,000 up to a maximum earnings threshold of $40,000 each year. Prior to the super reforms, these thresholds were $10,800 up to $13,800, respectively.
In addition to raising the income threshold for spouse super contributions, the Federal Government also introduced the Low Income Super Contributions Refund.
Under the Low Income Super Contributions Refund, if you’re taxable income is less than $37,000 the 15% contributions tax payable on employer or personal tax-deductible contributions will be refunded into your superannuation account up to a maximum refund of $500. This means individuals earning up to $37,000 of adjusted taxable income will effectively pay little or no tax on their superannuation guarantee (SG) contributions.
Great news for women (and men) who may only work part-time or ad-hoc during the year. Following the removal of the '10% work rule' from 1 July 2017, anyone eligible to make a contribution to super may be able to claim a tax deduction for the contribution if they have taxable income to offset the deduction. This is irrespective of whether the person is an employee or self-employed.
The removal of this earnings test provides more flexibility to make tax-effective contributions to super, particularly if you only work part-time; or if salary sacrificing is not available with the employer or is too prohibitive.
While salary sacrifice arrangements will continue to be a popular strategy, if you have concerns about your future cash flow or if you receive ad-hoc income payments, being able to control when and how much to contribute to super and still receive a tax benefit may be a more favourable strategy.
It is important to remember that these deductible contributions count against the concessional contribution cap, which is $25,000 from 1 July 2017. Super guarantee contributions (SGC) also count towards this cap. You need to bear this in mind when working out how much to contribute as a tax-deductible contribution for each financial year.
Example of how much can you contribute up to $25,000 limit
Having the flexibility to make contributions into super tax effectively will make a big difference in terms of saving for retirement. Salary sacrificing into super is a great strategy but it can be difficult due to the uncertainty of future earnings and cash flow for some. This problem can now be resolved with the ability to make personal deductible contributions when appropriate. This will be a winner for many women.
Catch Up Contributions
Effective 1 July 2018, individuals will be able to use the new 'catch up' concessional contributions provision which will allow unused concessional contributions within the cap to be carried forward on a rolling basis for up to five (5) consecutive years where their Total Super Balance is $500,000 or less.
As mentioned previously, the concessional contribution cap from 1 July 2017 is $25,000 per annum per person. Unused concessional contributions from 1 July 2019 can be used thereafter each year over the rolling five-year period.
The catch up provision will provide flexibility to those individuals who experience interrupted work patterns or have irregular income. This is particularly handy if you have stopped work to raise a family, or you are a small business owner with irregular income.
Brooke Gardener, Stockbroker and Financial Adviser at Morgans.