26 September 2023

How to take care of superannuation before starting a family

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Meg Watson* says whether you’re thinking of starting a family tomorrow or in 10 years’ time, it (literally) pays to be prepared.

Did you know that you don’t get any superannuation while on parental leave?

It’s not offered through the government’s Parental Leave Pay scheme, and it almost definitely won’t be offered if you’re eligible for paid parental leave through your work either.

“Parental leave is the only paid leave that employers don’t have to pay super on,” says Julie Lander, CEO of Care Super, a fund with primarily women members.

And this, combined with any unpaid time away from the workforce, can really hurt you in the long run.

“Women retire with [24 per cent] less than men and that’s largely because of their family responsibilities,” Ms Lander says.

“If you’re not earning, you’re not getting super.”

Advocates are consistently pushing for reform on this issue.

But, without any big changes, it’s pretty much up to each person to look out for themselves.

Whether you’re thinking of starting a family tomorrow or in 10 years time, here are a few things you can do to safeguard your super.

Start with a ‘super health check’

Do you have a bunch of different super accounts from various jobs over the years? Do you know what kind of fund your money is sitting in? What about how much you pay in fees?

Ms Lander recommends conducting a “super health check” to set everything on the right course.

That means:

  • Consolidating your super into one account to avoid paying loads of fees.
  • Checking the returns of your fund compared to the fees you pay (the ATO’s YourSuper tool can help you assess your options).
  • Checking your insurance is at the right level for your current circumstances.

“When you’re starting a family, you might actually have more liability,” Ms Lander says.

“You should check that the cover you have is adequate.

“And also that you’re not paying too much.”

Comparison tools like YourSuper can help you out with that, but it’s also worth checking in with your existing fund about the options they can offer.

Some funds will waive fees for insurance premiums while you’re on parental leave, for instance (although there are a few eligibility hurdles to jump first).

Cutting back on these little costs might not seem like a big deal.

But Ms Devine says it can make a big difference down the line.

“It’s not just the fees that add up.

“The money you spend on those fees would have been invested, so you’re also missing out on it compounding [over time].”

Make extra contributions when you can

You can harness this compound interest for good by making extra contributions to your account before you start a family.

Of course that’s a tough ask when budgets are tight, and particularly in the immediate lead-up to parenthood.

But financial adviser Victoria Devine says “it doesn’t have to be dramatic”.

It could be bumping up your super contributions by 1 per cent through salary sacrificing, or transferring “bite-sized pieces” whenever you can afford it.

This can then act as a bit of a buffer when/if you do take time off to care for a child.

And, if you’re a low- or middle-income earner, these contributions could even get you a little bit of extra cash.

If you earn less than $37,000 for the year and sling $1,000 into your super, for instance, the government will chip in $500.

“It’s essentially free money,” Ms Lander says.

“That is a fantastic return on your investment.”

Set up a new system with your partner

If you have a partner who is still earning an income while you care for a child, Ms Lander says there are two ways they can help boost your super:

  • They can split their super contribution, so a portion of what they usually receive goes directly to your account;
  • Or they can make separate after-tax contributions (which has the added benefit of a tax offset too).

Ms Devine says it’s really important to discuss these options and get on the same page.

“Some people might say, ‘Well what’s the point of me putting money in your super? What’s yours is mine. When we’re older, we’ll share it all anyway.’

“But it’s about fostering independence and making you feel like you can stand on your own two feet,” she says.

“Divorce rates in Australia are 50 per cent! … [If something went wrong] you don’t deserve to be worse off because you contributed to the relationship in a different way.”

Consider your long-term plans

This isn’t just an issue that’s going to affect you for however long you’re on parental leave.

After that initial 18 weeks or so has passed, there’s still the ongoing issue of childcare.

Are you going to stay home? Are you going to work part-time?

Multiple years of lost or reduced superannuation really add up.

Industry analysts have estimated that taking five years off work from the age of 29–34, for instance, can take about $100,000 off your retirement savings.

If you’re starting a family with a partner, Ms Devine suggests having a conversation about “parental load, what that means long term and whose contributions are going to be taken up because of that”.

You might decide to take turns as the primary caregiver.

You might decide to both work part-time.

You might decide it doesn’t make financial sense to go back to work, and instead keep splitting super contributions long-term.

“There’s no right or wrong answers,” Ms Devine says.

“It’s all about what’s right for you.”

*Meg Watson is a Journalist at ABC Everyday.

This article first appeared at abc.net.au.

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