You may not receive Super Guarantee (SG) contributions from an employer while you’re not working, but there are things you can do to give your super balance a boost and help keep your retirement savings on track.
1. Make voluntary contributions to your super
Being proactive about increasing your super while you’re still working can help you make up for the SG contributions you miss out on while you’re taking time off.
One way to do this is to set up a salary sacrifice arrangement with your employer in the lead up to your break or after you return – or both. This is where you make voluntary contributions to your super from your before-tax salary (i.e. a concessional contribution).
The impact on your long-term finances will depend on the length of your break and your own financial circumstances, so taking steps to increase your super can be important.
Career breaks to care for children and raise families, or look after other family members such as elderly parents, can significantly reduce your overall lifetime earnings capacity.
The amount you need for retirement will depend on your own financial circumstances, life expectancy and what sort of lifestyle you’re aiming for.
Super contributions and tax
If you salary sacrifice, your contributions up to certain limits are generally taxed at just 15%, which may be lower than your income tax rate.
This means you could reduce your taxable income and pay less tax overall.
If you're making additional contributions, there are contributions caps to look out for.
If you go over the concessional contributions cap, your excess contributions may be taxed at your marginal tax rate or use your unused concessional contributions cap (refer to ATO website for conditions that apply).
Keep in mind that concessional contributions also include your employer’s SG contributions.
You could also make contributions from your after-tax pay or savings, known as non-concessional contributions.
Non-concessional contributions are not subject to tax when made to your fund, except where you go beyond the non-concessional contributions cap. You can see the current cap and tax rate on the ATO's website.
2. Get a helping hand from the government
Your career break may involve some part-time or casual work.
Under specific earnings thresholds set by the Federal Government and certain requirements including whether or not you put some of your after-tax savings into your super, you could qualify for a co-contribution from the government.
You can find out more at the ATO website.
3. Consolidate your super
Have you got more than one super account? If so, you’re likely paying multiple administration fees.
You can contact the ATO to find any super accounts you might have and any money being held by the ATO. If you have multiple super accounts you can choose to consolidate them if you want to.
If you’d like to switch super funds at any stage in your life, take into account exit fees, investment implications and how it could affect any insurance arrangements. Speak to a financial planner if you're unsure.
Also be sure to consider any tax implications of switching super funds.
4. Starting a small business?
If you’re looking to start up your own venture during your time out from your day job, don’t forget about your super.
There might be tax deductions that you could claim on the amount you contribute, but check with a tax specialist or find out more from the ATO website.
Everyone’s situation is different, so it’s a good idea to check with your accountant or financial planner before you act.
A career break doesn’t have to mean putting the brakes on saving for retirement. There are a number of ways to keep building that nest egg for when you stop working for good.