Super considerations when having a baby

What to do when having a baby

Having a baby can be one of life’s great joys, and while we don’t want to distract you from those soon-to-be wonderful moments with finance talk, we promise we only have your future in mind!

Before all the Instagram photos and the much more fun things can begin, it’s time to think super. While super might feel like that item of clothing you keep at the back of your wardrobe and know you have but never, ever want to take out and look at, it’s actually pretty important.

So we’re going talk about it.

The reason being that super and the associated cost of a child is something many women - not so much men - have to bear.

Did you know the cost of a child can reduce a woman’s superannuation balance by up to $50,000 by the time they reach retirement age? Let’s look into why this super disparity affects women in particular, what options are available, and what support you can receive from the Government.

Superannuation Gender Gap

Unfortunately, the superannuation gender gap definitely exists and is largely due to the gender pay disparity between men and women.

But with women earning a base salary average of 15.3% (July 2018) less than their male counterparts, it’s no real surprise really when you do the maths. Women are also taking more time away from work for parental duties, and returning to part-time work for a variety of reasons, can impact a woman’s super contributions a great deal.

Of Australians retiring in 2016, men have an average super balance $114,000 higher than women. With five significant factors impacting Australian women, they are more likely to retire in poverty than men. This isn’t how things should be.

Super Baby Debt

The super baby debt is a primary contributing factor to the superannuation gap, but refers solely to the financial impacts surrounding the birth of a child. It’s a bit more complicated than just the initial absence from work though.

At the moment in Australia, 82% of women returning from parental leave will return to a part-time occupation.

The reasons for this are casualisation of the workforce, increasing part-time opportunities to maintaining work/life balance, and the costs of childcare.

How Does Part-Time Work Affect Superannuation?

In Australia, an employer is only required to make superannuation contributions should an employee's earnings exceed $450 a month.

So for many women, a part-time role would cover this minimum, but it’s worth being aware of in regards to lower paying occupations and work that’s completed on a casual basis.

Aside from this minimum amount, the fact remains that working part-time delivers a lower wage than full-time. With the vast majority of women returning to part-time roles, their earning potential is lower, as are their 9.5% Superannuation Guarantee contributions.

What Options Do You Have?

Crucially, doing nothing isn’t encouraged. If you’re planning on having a baby, then there are a few options to consider to reduce the risk to your retirement nest egg.

Consolidate Your Super

Many people, particularly when they start working, have a super fund created for them by their employer. This can feel nice and easy but often, when you change jobs your super fund changes too so it’s important to check every time you switch employer.

Otherwise, what you could end up with is a handful of super funds with small pockets of your money tied up in each of them. Consolidating your super funds can make it easier to manage, plus you’ll be paying one set of fees. Much better!

Don’t worry, while it might sound admin-heavy, consolidating your super is easy, simply choose a superannuation provider - consider Virgin Money Super in your review - then rollover the balances from the other funds into your chosen one. Make sure you tell your employer to pay your Super Guarantee contributions into your chosen fund.

Spousal Contributions

This one’s for the couples out there.

To achieve a fairer superannuation and subsidise a low or absent income, a couple could consider spousal contributions. As the title suggests, these are voluntary contributions you can make to your partners superannuation while they’re not able to earn, or earn enough, to receive contributions from their employer.

Eligibility is based on your spouse earning $13,800 or less a year. If that’s the case, then you can make up to $3,000 worth of contributions to their super fund while receiving an 18% tax rebate of up to $540 for yourself.

Spousal contributions can help to bridge the gender super gap as your allowing your partner to earn super (and the subsequent years of interest) while they’re taking care of your family and are unable to work.

Voluntary Super Contributions

While having children isn’t on the cards for everyone, if it’s in your future then you may want to consider voluntary super payments before you plan on having children and/or while you’re working full-time.

If you earn more than $37,000 per year, making pre tax voluntary contributions could be a tax effective and retirement saving strategy. You can request that your employer salary sacrifice out of your pre-tax income as a voluntary contribution to your superannuation. (Side note: these contributions are taxed at 15% when received by your super fund).

This type of arrangement is known as “concessional contributions” and they have a financial year cap of $25,000.

Take note that this cap applies to both the compulsory 9.5% contributions from your employer and these concessional contributions.

Aside from concessional contributions, you can easily deposit funds into your super account from your savings. These additions are known as non-concessional payments. These payments aren’t taxed further as you’ve already been taxed on it prior to entering your account. Happy days.

Depending on your income you might want to look at a mixture of both.

Government Co-Contributions

Did you know that the Government can also bolster your super balance in certain instances?

For those earning less than $51,813 before tax per year and make contributions to super from after-tax income then you are eligible for government co-contributions.

How much can you get? Well, it depends on where your income lies within the lower and higher thresholds set by the government.

Currently, the lower threshold is currently $36,813 and the higher at $51,813. If you earn over that higher threshold, you’re ineligible.

If you earn the lower threshold or less and make personal contributions to the value of $1,000 then you’re likely to receive the maximum co-contribution of $500. Your co-contribution then proportionally decreases as your income increases between the two thresholds.

Single Parents

We understand that single parenting can be challenging at the best of times. And it when it comes to super, this very much the case.

While single parents could benefit from government co-contributions, spousal contributions aren’t an option and voluntary payments are likely to be more financially challenging.

If you’re a woman and a single parent, then your super woes are statistically much worse.

You’re not alone though and there are steps you can take to ease your situation. You could consider choosing a super fund that offers you the flexibility and control of your investments, such as Virgin Money Super. That way you’re in control of your money at all times.

Single Due To Divorce

A recent report notes that divorced women have a super balance “70 percent less than married women”. This is largely due to the recurring themes of:

  • The gender pay gap
  • The casualisation of the workforce (leading to reduce earning potential)
  • The motherhood penalty
  • The increased cost of living as child care costs (averaging $70-$192 per day)
  • Lack of income subsidy from spousal income and/or super contributions

Everyone’s different, and depending on your financial situation, you may be eligible to an early release of your superannuation. There are many criteria to review and eligibility tests to pass before this occurs though, so it’s a good idea to digest as much of the information available when weighing up your options.

Assistance for Single Parents

When it comes to parenting and super, the more help the better in our eyes - sometimes you just need a point in the right direction.

There are plenty of government and support networks available to single parents looking to navigate their financial future.

You could also try Centrelink. They offer parenting payments solutions that are designed to ease the financial burden of being a single parent. Like with most government assistance, there are income tests and a series of criteria you must meet in order to benefit, but it’s worth exploring as the maximum fortnightly payment is $748.10, and that can make a big difference to your general living expenditure.

Another good organisation is the Raising Children Network. These guys are an invaluable resource for everything related to parenthood, and is worth exploring for their financial, mental health, and general child care advice. They also offer a wealth of resources for children living with disabilities.

How Virgin Money Can Help

We want to help out would-be-parents and parents as much as possible. 

That’s why Virgin Money are taking our own steps to assist you throughout your professional career and into retirement.

Our superannuation fund offers you freedom of choice in how your money is invested, a simple consolidation process, among the lowest fees in the market, automatic death and total disability income protection insurance, and our ‘baby break’ fee reduction service that reduces your administration fees for up to 12 months while you care for you new baby boy or girl.

Discover all the benefits of Virgin Money Super and see if it can help you achieve a brighter financial future for you and your family.

Important Information

This information is of a general nature only and does not take into account your personal financial situation, needs or objectives. Please consider your own personal financial circumstances and consider the Product Disclosure StatementProduct GuideInsurance Guide and Financial Services Guide before taking any action in relation to your superannuation, making a contribution, or asking your employer to contribute to Virgin Money Super for you. You should consider the suitability of superannuation and Virgin Money Super’s Product Disclosure Statement before making a decision on your superannuation investments, making a contribution, or asking your employer to contribute to Virgin Money Super for you. For further information about the insurance options refer to the Insurance Guide.

It is very important to note that superannuation is generally a long term investment. Past investment performance is not a reliable indicator of future performance and should never be the sole factor considered when selecting a fund.

Before you rollover or consolidate your superannuation, you should check to see if insurance or other benefits will be impacted or lost. Some funds may also charge withdrawal or exit fees. You should consider the relevant Product Disclosure Statement. Please note this information does not constitute personal financial product advice, and you may wish to consult your financial adviser before making a decision about whether Virgin Money Super fits your objectives, financial situation and needs.

If you are considering making voluntary contributions into your Virgin Money Super account, you should consider your personal circumstances, the impact of such contributions to your contribution caps, as well as associated taxation issues before making any decision on making voluntary contributions. Concessional tax rates do not apply on contributions which exceed government contribution limits. See the ‘How Super is Taxed’ section of the Virgin Money Super Product Guide and the contribution fact sheet on our website for more information about contribution types and limits.

Prepared by Virgin Money Financial Services Pty Ltd ABN 51 113 285 395 AFSL 286869 (‘Virgin Money’). Virgin Money Super is a plan in the Mercer Super Trust ABN 19 905 422 981. Virgin Money Super is issued by Mercer Superannuation (Australia) Limited (MSAL) ABN 79 004 717 533 AFSL 235906 as trustee of the Mercer Super Trust. For more information about Virgin Money Super, please refer to the PDS which is available free of charge on our website or by calling the Customer Care team on 1300 652 770.