Tag Archives: Wealth Accumulation

Women and superannuation – how the pay gap can impact your super

By Robert Wright /September 08,2021/

According to the Australian Bureau of Statistics, women are retiring with 37% less than men in their super accounts, which is a frightening thought considering women, on average, live up to five years longer.

So, what’s behind the super gap?

The super gap is partly due to the lower average earnings of women. Data from the Workplace Gender Equality Agency, reports that the full-time remuneration gender pay gap in Australia is 13.4% compared to males.

While many have blamed the “wage gap” on gender, Harvard Business Review research suggests women ‘ask’ for pay rises as much as men do, however, they are far less likely to actually get them.

The study also suggests that while men are successful in negotiating a pay rise 20% of the time, women were only successful 15% of the time.

This in turn impacts retirement savings, as the less money you earn, the less superannuation you will receive because your Superannuation Guarantee contributions are based on your level of income.

The second reason for the super gap, is that women typically take time out of the workforce to raise children. The absence of ongoing superannuation contributions can have a significant impact on the final amount women can end up with in super.

What can be done to address the super gap?

One of the simplest ways to catch up on lost super contributions, is to make additional contributions to super along the way. Small amounts over longer periods of time may be easier to commit to, for example, making additional contributions may be enough to narrow the gap caused by taking time out for the workforce.

If you are getting closer to retirement, you may consider maximising the amount you are contributing each year in concessional contributions up to the $27,500 limit (or higher if you have previous unused concessional cap amounts).

Keep in mind, however that any contribution you do make to super will be preserved, and unable to be accessed until you meet a condition of release from super. Most commonly this would be reaching your preservation age and then retiring.

In addition, it’s worth considering if you are in an appropriate super fund, which meets your needs, including the level of insurance cover you have and whether you may reduce this if you no longer need it.

Consider the fee structure of the super fund and also pay attention to how your super is being invested, for example – if you have a long time until retirement, you may benefit from increasing your exposure to growth assets.

For women in relationships, a problem shared could help close the retirement gap. This is because your spouse can split up to 85% of their concessional contributions each year with you.

Furthermore, if you earn less than $40,000 per annum, your spouse may be eligible for a tax offset of up to $540 for a $3,000 contribution (made with after-tax money).

Take control of your super as soon as possible; little changes early can potentially make a big difference in the long-term.

Source: BT

Retirement Realities: Five Tips for Rebuilding a Super Future

By Robert Wright /August 26,2021/

Australians will need to rebuild their superannuation and retirement savings, after withdrawing more than $36 billion in early super release payments in 2020, according to Colonial First State’s Retirement Realities Series.

The research found that the largest number of early super payments were made to Australians under age 40 with Australians under 30 receiving nearly one-third of these payments.

The research also revealed that Coronavirus had a big impact on the retirement savings of women, with the average super balances for men consistently higher than women – $110,000 vs $93,000 in December 2020, with a faster rate of growth for men.

But there is positive news. Half of Australians who withdrew their super early, have now made headway in making contributions either through their employer or by making their own contributions.

Despite the challenges there are a number of practical ways for Australians to get their super back on track and live a comfortable life in retirement.

Five Tips to Consider to rebuild your Super

1. Make small and regular top-ups

Even a small contribution to your super makes a big difference in the long term and to how much money you have in retirement.

How does it work? Your employer can pay some of your salary into your super before tax is taken out, instead of our bank account. And yes, that means a tax benefit. It is also a very simple and effective strategy.

If you withdrew $10,000 from your super, making additional contributions of just $20 per fortnight pre-tax (salary sacrifice) at age 30, can mean an additional $25,000 at retirement.

2. Seek advice

Advice can come in different shapes and sizes. Make the most of free online resources and calculators that provide useful tips and information.

A financial adviser can also help you plan for your future. According to Colonial First State, women who received financial advice made a 199% higher average voluntary contribution in 2020 compared with women who did not get advice.

Similarly, the research found that men who sought financial advice were 85% ahead of those who didn’t get advice.

3. Manage your debts

The majority of people who accessed their superannuation early used it to pay their mortgage or rent (29%), household bills (27%) or credit card bills or personal debts (15%) . It might be a personal loan, a credit card or a mortgage (or a combination of all). The general rule is that it’s always good to pay off any high-interest debts first.

4. Take an interest and get control

Understanding what measures are available can make a big impact on how much money you have in retirement. For example, if you earn less than $54,837 you may qualify for a government co-contribution of up to $500 where you make a non-concessional contribution in a year.

Other measures including spousal, after-tax and concessional contributions which again could deliver tax breaks or qualify you for government contributions. Talk to us about the different ways you can grow your super.

5. Check in on your super with online reminders

Just like scheduling diary reminders for work or social events or for bill payments, set yourself diary reminders to check your super every month. It is easy to set up these regular reminders on your online balance. Think of it as a ‘reality check’ on whether you are on track for a comfortable retirement.

Source: Colonial First State

Adding more to your retirement savings: is it worth it?

By Robert Wright /August 26,2021/

There’s no denying that being proactive with your super may be key to increasing your retirement savings.

As an investment vehicle, super can offer significant benefits thanks to the magic of compounding interest. It also provides one of the best tax structures available.

Why super offers much promise for retirement saving

Adding more into super is not only a good way to invest your income, it also helps your retirement savings grow so that when you do retire, your money will still be worth something.

Depending on your income and how much you can afford to contribute, adding more into your super may be a decision that could benefit you in retirement.

Why? It boils down to two key things.

Magic of compound interest

The first, is the magic of compounding interest – the process of earning interest on your interest and so on.

For example, if you invested $10,000 at 5 per cent per year, each year you would earn $500 in simple interest. However, when you add in the magic of compounding and allow the $500 interest earned in the first year to be added to your account balance, then repeated each year during the 5-year period, after 5 years you would have earned a total of approximately $2,762 in interest (compared to $2,500 in interest after 5 years using simple interest). This would give you a total of $12,762 after 5 years.

But that’s not all.

One of the best tax structures available

From a tax point of view, super can be incredibly powerful.

By making extra contributions to your super fund using your pre-tax income, up to the current annual contribution cap of $27,500 (2021/22), you could benefit from those contributions being taxed at just 15 per cent. This is potentially a lot less than the personal tax you would pay on your income.

If your spouse is a low-income earner, there are tax benefits you could gain too for making a contribution to their super.

But like most good things, super is not without its drawbacks.

Limitations of super for retirement saving

Super does have some limitations as an investment vehicle. For instance, you can only make up to $27,500 in super contributions before-tax in the 2021/22 financial year (this amount includes your employer’s contribution of 10 per cent of your salary) or up to $110,000 in after-tax contributions in a financial year. You may be liable for more tax if you exceed these limits.

There are also limitations on when you can access your super.

Get support

Planning for your retirement can be a complex and a challenging area to get your head around.

So if you’re keen to supercharge your retirement savings, but aren’t sure how to go about it, then speaking to a financial adviser can be a good way to go.

Bottom line: Being proactive with your super will likely make a significant difference to the size of your final nest egg.

Source: BT

Five things you and your partner should know about super

By Robert Wright /July 30,2021/

Money issues are often cited as the biggest causes of stress in a relationship. Yet despite their importance, a recent survey of Australian couples found that 43% hadn’t discussed how they’d share their incomes before they committed. And close to a third hadn’t talked about their financial situation with their potential partner at all.

Even if you and your partner manage your day-to-day finances well, have you considered the impact your relationship has on your retirement savings? Here are five things that every couple should know about super.

1. Understand how super rules apply to you as a couple

When it comes to super, you have the same rights regardless of whether you’re married, in a de facto relationship or in a civil partnership.

This means if your partner passes away, you could be entitled to receive their super – and potentially any life insurance in their super account. What’s more, if your relationship breaks down you could either receive some of their super or need to pay some out to your partner. 

In a relationship breakdown, super is considered property by the courts for married couples and those in de facto or civil partnerships. And like other assets, it can be divided between the two people. You can agree to split your super, or the court can order you to do so. Alternatively, you can choose to split your other assets but leave your super benefits untouched. In some cases, you can put off your decision until later on – say, in retirement.

Remember, if you do split your super with your former partner, neither of you can access this money until you reach preservation age or meet another condition for early release of super.

2. Work out how much you need for retirement

As a rule of thumb, couples have the better deal when it comes to saving for retirement because they can pool their resources. If you own your home and are in good health, the Association of Superannuation Funds of Australia estimates that you’ll need an annual income of $40,739 for a modest lifestyle in retirement or $62,562 for a comfortable one. By comparison, a single person may need $28,179 or $44,224 respectively. So if you’re part of a couple, it may be easier for you and your partner to reach your retirement goals.  

But of course, your situation will differ from other couples. You may have complex health needs, or still have a mortgage by the time you retire. Maybe you don’t own a home – or perhaps you’ll still have financial dependants after you’ve finished working. Whatever your situation, it’s important to discuss with your partner the kind of lifestyle you want in retirement – and how much super you’ll need to support it. 

3. Find out if you’d benefit from spouse super contributions

If you’re a high earner and your spouse earns $40,000 or less a year, you could both potentially benefit from the spouse contribution strategy. 

Here’s how it works: you make an after-tax contribution of at least $3,000 into your spouse’s super. If your spouse earns $37,000 or less, you could then earn a tax offset of $540 – and your spouse gets a welcome boost to their super. You may still receive a partial offset if your spouse earns up to $40,000.

4. Consider splitting your super

Did you know that couples can split up to 85% of their Super Guarantee (SG) contributions each year – plus any salary sacrifice and personal super contributions you might make? To do this, your spouse must be under preservation age and not retired, and you must split your contributions at the end of financial year in which they were made. 

Splitting super could benefit you as a couple if one of you has substantially more super than the other, and where:

  • There is an age difference: The older spouse can reduce their super balance by splitting it with the younger spouse, and then they may be entitled to a part Age Pension when they retire. 
  • You want to withdraw large lump sums in retirement: Currently, lump sum withdrawals are capped at $215,000 (that’s set to increase to $225,000 for 2021-22). But if you split your super, you could potentially both withdraw up to $430,000 tax-free (or $450,000 from 1 July 2021). 
  • You want to avoid going over the $1.6 million super cap: While you can have more than $1.6 million in your super account, you can only transfer a maximum of $1.6 million into a tax-free pension account. The transfer balance cap will be indexed and increased to $1.7 million from 1 July 2021.

5. Decide if you want to nominate your partner or spouse as a beneficiary to your super

You can decide who you want to nominate as a beneficiary for your super. You might want to nominate your spouse – but you don’t have to. Instead, you could choose someone else who is considered your dependant. For example, a child (including an adopted child or stepchild) or someone who is financially dependent on you.

One strategy is to leave your spouse the family home so they can continue living there – and then leave your super to your children. Or, if you’re a business owner, you could potentially leave the business to your spouse to continue running it and leave your super to your children. A financial adviser can help you work out what approach is most appropriate for your financial situation. 

Whoever you decide to leave your super to, it’s a good idea to set up a binding death benefit nomination so you have more certainty about how your super will be paid out if something happens to you.

Source: Colonial First State