There has been a huge increase in Self Managed Super Funds being set up by people in their 30’s and 40’s according to ATO statistics, with 42.7% of new trustees under the age of 45. So I am going to address an issue that until now has rarely been mentioned with SMSFs strategies, as previously they were seen as the territory of crusty old men.

Maintaining momentum with your super during times out of the workforce

There finally seems to be a push on at the moment to improve the superannuation of all women in Australia. They have been lagging behind when it comes to their superannuation due to breaks in their careers as mothers or carers or because they have chosen professions that are crucial to the economy but underpaid. Statistics repeatedly show, women will retire with a super balance that’s almost half that of men. The problem of this lower level of retirement savings is compounded when you understand that women live longer and therefore need more not less super that their male cohorts.

Taking time to raise a family as a stay-at-home-mum or having part-time employment to allow for caring for a sick family member leads to loss of contributions in those critical early and later years of superannuation savings. Money that could have been invested in their 20’s or 30’s that would have compounded year on year up to retirement has been foregone. The women who also take on the burden of carer for their parents or ill spouse in later years can miss the boost in savings capacity when the mortgage has been paid off.

But what can you do for your super while we wait for politicians, business and unions to come up with a long-term solution. If you are in the position of having to take a break in your career here are five strategies for continuing to build your super during those years where employer contributions are not available.

1. Personal contribution to access the Government Co-Contribution

Pregnancy and illness rarely fall in line with financial years so as long as you have worked any period during a tax year you can contribute up to $1,000 of your own savings to super and also be eligible to receive a government superannuation co-contribution of up to $0.50 for every $1 of non-concessional (after-tax) contributions you make to your super account.

You will be eligible for the super co-contribution if you can answer yes to all of the following:

• you made one or more eligible personal super contributions to your super account during the financial year
• you pass the two income tests
  • your total income for the financial year is less than the higher income threshold($53,564 for 2019-20)
  • 10% or more of your total income comes from eligible employment-related activities or carrying on a business, or a combination of both
• you were less than 71 years old at the end of the financial year
• you did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
• you lodged your tax return for the relevant financial year.
• have a total superannuation balance less than the transfer balance cap ($1.6 million for the 2019–20 financial year) at the end of 30 June of the previous financial year
• not have contributed more than your non-concessional contributions cap.

Spouse contributions with tax offset

A spouse contribution is an after-tax super contribution made by your partner directly into your superannuation account. This is a good for both parties as you get a boost to your super and your partner gets a tax offset to lower their taxable income.

Your partner may be able to claim an 18% tax offset (maximum $540) on spouse contributions of up to $3,000 if:

• the sum of your spouse’s assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $37,000 from 1 July 2019
• the contributions were not deductible to you
• the contributions were made to a super fund that was a complying super fund for the income year in which you made the contribution
• both you and your spouse were Australian residents when the contributions were made
• when making the contributions you and your spouse were not living separately and apart on a permanent basis.
• As is currently the case, the offset is gradually reduced for income above this level and completely phases out at income above $40,000.

For SMSF Trustees, make sure you clearly nominate in the reference or accompanying minute that this is a spouse contribution so the administrators can allocate it correctly.

3. Superannuation contributions splitting

This is a great way for partner to show commitment to maintaining your financial equality and showing taking care of family is a team effort. Contribution splitting which is fully explained in the linked article involves your partner directing a portion of their concessional superannuation contributions into your super account. The split occurs as a lump sum rollover and must be made in the financial year immediately after the one in which the contributions were made.

In any financial year, it is possible to split the lesser of:

• 85% of the partner’s concessional contributions (employer and salary sacrifice contributions)
• the concessional contributions cap of $25,000.

Contribution splitting can be a highly effective way to build your super while you take a career break and can work even if you had done some work before the pregnancy in the tax year or if you worked part-time afterwards.

Within an SMSF you should just minute the request to split the contributions and confirm the receiving member’s eligibility and then pass that minute to the administrators or accountant. They may have template minutes available to make this easier.

4. Choose the right long-term investment strategy

If you are in your 20’s to early 40’s then you should not just accept the standard “core” or “balanced” asset allocation in your Superannuation fund. You have the right to choose your profile and especially as an SMSF trustee. With the preservation age of 60 and likely to rise towards 65 or 70, you should be choosing an investment asset allocation that is growth or high growth orientated to make the most of compounding returns on growth assets like shares and property during those earlier years.

Of course if you personally cannot take on that much risk without worrying then you may need to be more conservative but with some guidance and education on long-term returns and investing I believe you can step up to the higher allocations to shares and property confidently.

5. Personal Non-concessional contributions

 Now this one may be a stretch as when you have had a baby or are caring for a sick family member, you may not be flush with savings or may be focusing on paying off the mortgage. However ,if you do have a surplus, then boosting your retirement savings with personal contributions is a good move.

Non-concessional super contributions are made by you out of your take-home (after-tax) pay, savings or for example an inheritance. You can add as little as you wish and whenever you wish subject to a maximum of $100,000 in any one year from 1 July 2017 or $300,000 if you are so lucky! using the 3 year bring forward rule.

The first $1,000 may be assessed for the government co-contributions as mentioned above, further boosting your savings.

So if you are one of the new breed of younger SMSF trustees who has to take time out for family or health reasons, you are not alone. You can maintain momentum with your super and use some or all of the above strategies to ensure your Superannuation powers ahead during time out of the workforce.

Budget 2016 had some positives for those with broken careers and one will be that you will be able to use unused contributions over a rolling 5 year period to play catch up on concessional (SG and salary sacrifice) contributions from 1 July 2018. 

Are you looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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