5 tips for managing your super during a career break
There are many reasons why you might take time out from work. Our five tips may help reduce the impact on your super balance at retirement.
Looking to take a career break? What does this mean for your super? Perhaps you're on sabbatical or taking time out to pursue other life goals? Maybe you're starting a family, planning a career change, or caring for an ageing parent? If you're taking time away from work for family or personal reasons, it's good to know your super is still working hard for you.
In this article you’ll find:
How career breaks can impact super over time
A career break can impact your super balance at retirement. Super is designed to help you live the best retirement possible, so it’s important to consider the effect of a career break on your super and look at what you can do to minimise the impact.
This is especially important for women. Research shows that women are more likely to take time out of the workforce to care for family, and work reduced hours when they return to work. They'll likely have a smaller super balance than men when they reach retirement age, due to the gender pay gap and to more time spent out of the workforce.
Let’s take a look at two scenarios, to see how career breaks can impact super over time.
Impact of a career break - 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.
Katie’s example
Katie joined UniSuper on 1 January 2022. She was aged 30, had a salary of $70,000 and transferred $30,000 from a previous super fund into her UniSuper account.
In this example, we’ve assumed:
- Katie’s employer contributes 10% of her salary1 into her account for the entire period.
- An investment return of 5% p.a.2 is applied to Katie’s account.
- Her salary increases by 3% p.a., even when she works part-time and takes unpaid leave.
These calculations don’t consider any paid parental leave or government benefits including the low-income superannuation tax offset she may be eligible for.
The scenarios below show how changes in Katie’s work situation can affect her super balance over 10 years.
| Scenario | Outcome |
|---|---|
| No career break | If Katie worked full time for 10 years as an Accumulation 1 or Personal Account member, her balance at age 40 is estimated to be $134,000. |
| One-year career break | If Katie had a year off at age 33 and returned to full-time work, then her benefit at age 40 is estimated to be $125,000. |
| One-year career break then return to work two days per week for a year | If Katie 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 $120,000. |
| One-year career break then return to work three days per week for four years | If Katie 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 $111,000. |
Impact of a career break – 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.
If you retired for other reasons like disablement, terminal medical condition or death, the formula used to calculate your benefit would differ.
The DBD leaving service formula is shown below:
Rosie’s example
Rosie joined UniSuper on 1 January 2022, aged 35. When she reaches age 45 on 1 January 2032, her five-year benefit salary will be $85,000. Rosie 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.
These examples don’t take into account any employer paid parental leave or government benefits Rosie might be eligible for. Nor do they take into account the value of her accumulation component.
| Scenario | Outcome |
|---|---|
| No career break |
If Rosie was employed full-time for 10 years as a DBD member, her defined benefit would be $161,500 |
| One-year career break |
If Rosie took a year off at 37 and then returned to full-time work, her benefit at 45 would be $145,350. |
| One-year career break then return to work two days per week for a year |
If Rosie 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. |
| One-year career break then return to work three days per week for four years |
If Rosie 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. |
These examples don’t take into account any employer paid parental leave or government benefits Rosie might be eligible for. Nor do they take into account the value of her accumulation component.
Five tips to manage your super
As the examples above show, breaks in your career, or changes to your work circumstances, can have material impact on your superannuation balance – and potentially your retirement. So, what can you do to lessen the impact?
Here are five tips to manage your super to cater for career breaks.
1. Chat to a financial adviser
Speaking with a financial adviser can give you the tools and support you need to make financial decisions and prepare for a better future. A financial adviser can help you determine the best way to manage your everyday finances. If you’re taking a break, they can advise you on:
- Cash flow planning
- Paying off debt
- Devising a realistic savings plan (super and non-super)
- Ways to grow wealth through investing
- Insurance to suit your circumstances, and how to budget for it
For UniSuper members, a first appointment with a financial adviser is part of your membership and is completely obligation free. Our advisers will provide a quote before you commit to any ongoing work.
Get in touch with UniSuper Advice for more information and to make an appointment.
2. After-tax contributions
Generally, you can top up your super from your savings or any additional earnings you receive, such as a work bonus, pay rise, tax return or inheritance. It’s called an ‘after-tax’ contribution.
Your partner may also make after-tax contributions to your super fund and is potentially eligible for a tax offset if they do. See more on the ATO website.
You can make one-off or ongoing after-tax contributions. Either way will generally contribute to more super over time as your balance benefits from compound interest.
For more information on whether after-tax contributions are for you, and to see a sample comparison, see ‘After-tax super contributions’.
3. Contributions splitting
Your partner may be able to split their super contributions with you. This involves them paying up to 85% of their before-tax contributions into your super account instead of their own.
- Eligible before-tax contributions include:
- employer contributions
- salary sacrifice contributions
- contributions for which they’ve claimed a tax deduction.
For more information on contributions splitting including eligibility and how to contribute, see ‘Spouse super contributions’.
4. Salary sacrifice
You can ask your employer to deduct a portion of your pay and contribute it to your super. This is in addition to the super guarantee amount of 10%, which your employer is generally obliged to pay.
Salary sacrifice is one way to prepare for the pause in super contributions while you are on a career break.
Additional benefits are:
- salary sacrifice contributions are taxed at 15%, which is generally lower than the tax you’d pay if you received that income as take-home pay
- your taxable income is reduced, so you may pay less income tax
For more information, see ‘Salary sacrifice’.
5. Review your investment strategy
Your current investment strategy may not be doing the most for you if you plan on taking a career break. While this won’t change the amount of contributions going into your account, it may increase your account balance through the investment returns it earns.
Your choice in investment strategy will be determined not only by your age, but also by how long you think you will work before you retire, and by your risk appetite.
To gain more of an understanding of what options are available, their associated risks and potential returns, see our ‘Understand Investing’ guide. Or a financial adviser can help you best match an investment option to your needs, with career breaks in mind.
In summary
It’s worth putting some thought into how you can reduce the impact of any breaks from the workforce you may have in the future. There are measures you can take to top up your super savings before a career break, and to ensure your super investment options are right for you.
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Things you need to know
1 Current legislation provides for the rate of superannuation guarantee contributions (SG) of 10% from 1 July 2021, increasing by 0.5% each year thereafter until it reaches 12% on 1 July 2025. For simplicity of calculation, we’ve assumed a rate of 10.0% 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.
3 This 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.