Career breaks and super

Super Informed

20 May 2019

10 min read

Taking time away from work affects your super

When you take a break from work, your super contributions also take a break. As women are more likely to take time out of the workforce to care for family and then work reduced hours when they return to work, the impact on their super is usually greater than that experienced by men.

We take a look at the possible impacts of a career break and offer some strategies to stop your super from stagnating.

Accumulation super accounts

Your super balance reflects the amount of contributions you or your employer make, the performance of your chosen investment option(s) and the fees and taxes you pay.

An example: Rania

Rania joined UniSuper on 1 January 2018. She was aged 30, had a salary of $70,000 and transferred $30,000 from a previous super fund into her UniSuper account.

See how changes in Rania’s work situation can affect her super balance over 10 years.

In this example, we’ve assumed:

Rania’s employer contributes 9.5% of her salary¹ into her account for the entire period.
An investment return of 5% p.a.² is applied to Rania’s account.
Her salary increases by 3% p.a., even when she works part-time and takes unpaid leave.

These calculations don’t take into account any paid parental leave or government benefits including the low income superannuation tax offset she may be eligible for.

Scenario	Outcome
No career break	If Rania worked full time for 10 years as an Accumulation 1 member, her balance at age 40 is estimated to be $129,000.
One-year career break	If Rania had a year off at age 33 and returned to full-time work, then her benefit at age 40 is estimated to be $121,000.
One-year career break then return to work two days per week for a year	If Rania had a year off at 33 and returned to work two days per week for a year before returning to full-time work, then her benefit at 40 is estimated to be $116,000.
One-year career break then return to work three days per week for four years	If Rania had a year off at 33 and returned to work three days per week for four years before returning to full-time work, then her benefit at 40 is estimated to be $108,000.

Defined Benefit Division accounts

If you’re in the Defined Benefit Division (DBD), your super is calculated using a formula that takes into account your level of employment (full-time or part-time) :³

Taking unpaid leave or working part-time impacts the average service fraction (ASF) part of the formula.

An example: Lena

Lena joined UniSuper on 1 January 2018, aged 35. When she reaches age 45 on 1 January 2028, her five-year benefit salary will be $85,000. Lena has also made default member contributions (which are an additional 7% after-tax contributions on top of her 17% employer contributions) since she joined UniSuper.

Scenario	Outcome
No career break	If Lena was employed full-time for 10 years as a DBD member, her defined benefit would be $161,500 Lena would have worked full-time for 10 years, so her ASF would be: (10 x 100%) ÷ 10 = 100% At age 45, Lena’s defined benefit would equal $161,500, calculated as follows: $85,000 × 10 × 19% × 100% × 100% = $161,500 A 3% contribution goes to her accumulation component, along with any additional contributions and money that she’s transferred from other super funds. This is added to the defined benefit component to calculate her total balance.
One-year career break	If Lena took a year off at 37 and then returned to full-time work, her benefit at 45 would be $145,350. Her accumulation component would also grow more slowly due to reduced contributions. Lena would have worked full-time for 9 of her 10 years as a DBD member so her ASF equals: [(9 x 100%) + (1 x 0%)] ÷ 10 = 90% Substituting Lena's new ASF of 90% into the formula, her defined benefit would equal $145,350, calculated as follows: $85,000 × 10 × 19% × 90% × 100% = $145,350
One-year career break then return to work two days per week for a year	If Lena took a year off at 37 and returned two days per week for a year before returning to full-time work, her benefit at 45 would be $135,660. Her accumulation component would also grow more slowly due to reduced contributions. Lena would have worked full-time for 8 of her 10 years as a DBD member. Her year of working 2 days in a 5 day working week would have a service fraction of (2 ÷ 5) = 40%. So after the 10 years her ASF would be: [(8 x 100%) + (1 x 0%) + (1 x 40%)] ÷ 10 = 84% and her defined benefit would equal $135,660, calculated as follows: $85,000 × 10 × 19% × 84% × 100% = $135,660
One-year career break then return to work three days per week for four years	If Lena took a year off at 37 and returned three days per week for four years before returning to full-time work, her benefit at 45 would be $119,510. Lena would have worked full-time for five of her 10 years as a DBD member. Her years of working three days in a five day working week would have a service fraction of (3 ÷ 5) = 60%. So after the 10 years her ASF would be: [(5 x 100%) + (1 x 0%) + (4 x 60%)] ÷ 10 = 74% and her defined benefit would equal $119,510, calculated as follows: $85,000 × 10 × 19% × 74% × 100% = $119,510 Her accumulation component would also grow more slowly due to reduced contributions

These examples don’t take into account any employer paid parental leave or government benefits Lena might be eligible for. Nor do they take into account the value of her accumulation component.

What can you do to lessen the impact?

Share with your spouse

Periods of unpaid leave can be a financial strain, particularly if you’re juggling other financial commitments. If you have a partner who can, contribution splitting is a way for them to transfer before-tax super contributions to your super account.

In some circumstances, a spouse who contributes to their partner’s super account may be eligible to claim a spouse tax offset.

Spouse contributions

Pay yourself forward...

...by salary sacrificing to super from your pre-tax pay while you're still working full-time. This can boost your balance, helping make up for when your super contributions are lower and can reduce the tax you pay.

Salary sacrifice

Check your investment strategy

How you invest your super now can affect your super balance later. We offer a range of investment options for members with different investment needs.

Learn about our investment options, the investment risk and return relationship and how to make an investment choice.

If you’re a DBD member, you can only choose how your accumulation component is invested.

Let us help you

A UniSuper financial adviser can work with you to develop a plan to keep your super account ticking along through a career break. Our team of financial advisers operates Australia-wide.

¹ Current legislation provides for the rate of superannuation guarantee contributions (SG) to increase from 9.5% to 10% on 1 July 2021, and to increase by 0.5% each year thereafter until it reaches 12% on 1 July 2025. For simplicity of calculation, we’ve assumed a rate of 9.5% throughout. This will cause an underestimation if the rate of SG increases as provided under current law.

² Actual returns may vary significantly from year to year and could be negative in some years, particularly for those options with greater exposure to growth assets, such as shares and property. Investment returns depend on the investment options you have chosen and returns are not guaranteed. The investment returns are gross of default insurance and administration charges, indexed by inflation of 2% p.a. Actual insurance and administration charges may be higher or lower.

³This formula is for a member who joined the DBD on or after 1 January 2015. If you were a DBD member before 1 January 2015, part of your benefit would be calculated using the old formula and part of your benefit would be calculated using the new formula. If you retired for other reasons like disablement, terminal medical condition or death, the formula used to calculate your benefit would differ.