Dixon Advisory’s head of financial advisory Nerida Cole told guests at the launch of RaboDirect’s Financial Health Barometer Super & Retirement Report that being out of the workforce for extended periods can have a dramatic effect on retirement savings.
While Ms Cole suggested these strategies as ways women could begin to close the “really concerning” gap between men and women’s retirement savings, a “systemic issue” of which taking time out of work is only a part, these strategies can be employed by any stay-at-home parent to bolster their super.
Five-year catch-up contributions
Commencing from 1 July 2018, people with less than $500,000 in their superannuation who have returned to work after time out of the work force will be able to exceed the annual before-tax contributions cap by the amount of unused portions of your concessional caps from up to five previous years.
Ms Cole said this “will allow people that have perhaps had a break out of the workforce or being on part-time and haven’t been able to make those additional contributions in that period because they’ve had a low salary to then catch up when they return to work and are back on that high salary”.
Spouse contribution tax offset
A person making contributions to their (married or de facto) spouse’s super will be entitled to a $540 tax offset, so long as their spouse’s assessable income, total fringe benefits amounts and reportable employer super contributions for that financial year are below $13,800.
This threshold is, however, increasing to $40,000 from 1 July 2017, meaning more people will be able to access the offset, which Ms Cole explained “will help a much bigger range of people, and that could be very valuable to just build super”.
Ms Cole noted that “the name sounds more interesting” than the strategy itself, but nevertheless it can be a useful strategy to help grow retirement savings.
“It’s not splitting anyone up or splitting their relationship up, it’s splitting your employer’s contribution, so let’s say you’ve had a break from the workforce to be the primary caregiver, but your partner’s continued to work and they’ve had their super guarantee go in to their super account,” she said.
“At the end of the financial year just after it’s finished you can ask the super fund to have the worker-person’s employer’s contributions split over to the person who has been out of the work force or hasn’t had much super guarantee.”
Ms Cole sees this as a very important strategy, as it keeps those who are currently working very little engaged with their superannuation and, in the long-term, will provide both people with more opportunity to reach the maximum tax-free amount at retirement.