Gender Inequality in Superannuation

Gender gaps can affect superannuation accounts as much as they can affect salary rates. With barriers to entering into fields, lower hourly rates of pay, less hours worked and more unpaid labour affecting the amount of super Australian women are retiring with, as compared to men.

Currently, the median superannuation balance for men aged between 60-64 stands at $204,107 whereas the superannuation balance for women of the same age has a median total of $146,900. It’s a gender superannuation gap of 28%.

This gender gap in superannuation balances can be impacted even more by women using maternity leave. With women taking their time off from work and losing out on super contributions during this period of paid parental leave, it can affect their super in the long run as it exacerbates the income and superannuation gaps that were already in effect during their employment.

It can also be exacerbated by existing salary gaps across the workforce. Despite traditionally male-dominated fields experiencing high percentages of female graduates entering into the workforce, the positions that they fill are not always high-ranked, irrespective of experience.

There are threeproposed measures with regard to how the superannuation gap could be addressed at a macro level. These include:

• Including superannuation guarantee contributions in the Commonwealth Paid Parental Leave scheme, as a majority of recipients are women and it is a leading cause of the gap exacerbation.
• allowing unused concessional contributions to be made for recipients of Commonwealth Paid Parental Leave without time limits is having a negative impact on women’s superannuation outcomes, so the policy needs to be changed accordingly.
• Amending the Sex Discrimination Act to ensure employers are able to make higher superannuation payments for their female employees if they wish to do so without contravening the existing legislation.

Here are some examples of ways in which women can increase their super balances to make up for any losses that may have been incurred:

• Contribution splitting – by having their spouse transfer some of their superannuation contributions over to their account, their account can be increased.
• Salary-sacrificing contributions into their super to make up for the shortfall from not working in previous year.

If you are concerned about your superannuation, or would like further advice, please speak with us.

Gender Inequality in Superannuation

Gender gaps can affect superannuation accounts as much as they can affect salary rates. With barriers to entering into fields, lower hourly rates of pay, less hours worked and more unpaid labour affecting the amount of super Australian women are retiring with, as compared to men.

Currently, the median superannuation balance for men aged between 60-64 stands at $204,107 whereas the superannuation balance for women of the same age has a median total of $146,900. It’s a gender superannuation gap of 28%.

This gender gap in superannuation balances can be impacted even more by women using maternity leave. With women taking their time off from work and losing out on super contributions during this period of paid parental leave, it can affect their super in the long run as it exacerbates the income and superannuation gaps that were already in effect during their employment.

It can also be exacerbated by existing salary gaps across the workforce. Despite traditionally male-dominated fields experiencing high percentages of female graduates entering into the workforce, the positions that they fill are not always high-ranked, irrespective of experience.

There are threeproposed measures with regard to how the superannuation gap could be addressed at a macro level. These include:

• Including superannuation guarantee contributions in the Commonwealth Paid Parental Leave scheme, as a majority of recipients are women and it is a leading cause of the gap exacerbation.
• allowing unused concessional contributions to be made for recipients of Commonwealth Paid Parental Leave without time limits is having a negative impact on women’s superannuation outcomes, so the policy needs to be changed accordingly.
• Amending the Sex Discrimination Act to ensure employers are able to make higher superannuation payments for their female employees if they wish to do so without contravening the existing legislation.

Here are some examples of ways in which women can increase their super balances to make up for any losses that may have been incurred:

• Contribution splitting – by having their spouse transfer some of their superannuation contributions over to their account, their account can be increased.
• Salary-sacrificing contributions into their super to make up for the shortfall from not working in previous year.

If you are concerned about your superannuation, or would like further advice, please speak with us.

How Super For Contractors Can Work

Contractors who run their own business and sell their services to others have different obligations to their super than what employees in a business may usually have.

A contractor (also known as an independent contractor, a subcontractor, or a subbie) who is paid wholly or principally for their labour is considered to be an employee for super purposes, and may be entitled to super guarantee contributions under the same rules as other employees.

A contract may be considered ‘wholly or principally for labour’ if:

• You’re paid wholly or principally for your personal labour and skills
• You perform the contract work personally
• You’re paid for hours worked, rather than to achieve a result

If hiring a contractor to perform solely their labor for a fee, the employer may also have to pay super contributions on their behalf.

In this sense, if you are a contractor who is being contracted to an outside business than your own to perform your usual work or labour, your employer must contribute to your super the same way they would any other employee.

This could be seen in an example of an electrician who runs their own small business, or is employed by a small business who has been hired by another business to supplement their workforce and perform a specific role that they can fit to.

Say the electrician who runs their own business has been subcontracted by the larger business.

They are performing labour but also providing materials (ie, themselves plus a toolbox plus a van full of powerpoints and wiring etc), they would be seen as a contractor and not an employee for super purposes. They must pay themselves super, in this case.

However if they are sub-contracted to perform labour only then the company that has sub contracted them may be liable to pay super on the amount that they pay to their contractor. This would be the case where the electrician just turns up with their tool box and everything else is provided by the “employer”.

If they are in an employment-like relationship with the person that they entered their contract into, they may need to have their super paid to them by their contract employer. In order for super to be applied from what you earn, the contract must be directly between you and your employer. It cannot be through another person or through a company, trust or partnership.

It is important that both parties in the process are aware of their super obligations during the contracted period. There can be significant penalties for employers who use contractors if they fail to correctly pay super. Each case regarding contractors and super needs to be assessed independently to ensure that you are doing the right thing. There is no definitive black and white line between a contractor and a contactor in an employment-like relationship that can be obviously seen after all.

If you’re unsure about whether or not you’re meeting your obligations as an employer, or are a contractor looking to make sure their super is being correctly paid into, speak with us.

What Is A Retirement Planning Scheme?

With a significant number of Australians approaching retirement and looking at the best ways to maximise their retirement assets and income from their super for it, retirement planning makes sense.

Unfortunately, there are those who want to target people approaching and planning for their retirement with schemes designed to ‘help’ retirees and prospective retirees avoid paying tax by channelling their income through a self-managed super fund.

Retirement planning schemes are designed to help people avoid paying tax on the income earned through their assets (often in an illegal manner). Those schemes may seem like a simple get-rich-quick solution in maximising assets and income for retirement but can put people’s entire retirement savings at risk.

Anyone can fall prey to a retirement planning scheme. Anyone who is looking to put significant amounts of money into superannuation can be at risk of being ensnared, particularly those who are over 50, and who are:

• SMSF trustees
• Self-funded retirees
• Small business owners
• Professional service providers
• Individuals who are involved in property investment

Checking for standard features of retirement planning schemes can be an excellent way to avoid becoming tangled in one. Retirement planning schemes usually:

• Are artificially contrived and complex, with SMSF members often targeted and encouraged to use their SMSF as part of the scheme
• Involve a lot of paper shuffling
• Are designed to leave the taxpayer with a minimal or zero tax, or even a tax refund
• Aim to give a present-day tax benefit by adopting the arrangement
• Sound too good to be true – in most cases, they are.

Currently, there are a number of schemes targeted towards those individuals who currently have an SMSF, as they have a high level of control and autonomy in the way that their retirement savings are invested (subject to applicable tax and super laws).

Some examples of retirement planning schemes include:

• Some arrangements involving SMSFs and related-party property development ventures.
• Refund of excess non-concessional contributions to reduce taxable components
• Granting legal life interest over a commercial property to SMSFs
• Dividend stripping
• Non-arm’s length limited recourse borrowing arrangements
• Personal services income
• Liquidating an SMSF

To avoid becoming a part of a retirement planning scheme, seek professional advice on super or SMSFs from an accountant.

Super Co-Contributions Boost On Behalf of A Spouse

Marriage and de facto relationships come with a number of perks – but did you know that if your partner earns less than you or is not currently working, you could contribute to their super fund savings?

Many households in Australia, either as a result of unemployment, maternity/paternity leave or by choice, have single income households. As a result, the retirement savings held in super for one member of these households may not be increasing as exponentially fast as the working member. The good news is that, when in a relationship, a spouse can boost their non-working partner’s super fund with their own contributions.

The best part? It could be a tax write-off for the working spouse.

Under Australian superannuation law, a spouse can be a legally married partner with whom you live or your de facto partner. That gives additional benefits to those in de facto relationships, who can choose (if one member of the relationship isn’t working or earns less) to boost their partner’s super fund. A spouse must also be younger than their preservation age or between 65 and their preservation age and not retired.

There are two ways that someone can help their partner’s superannuation grow:

• Making a Spouse Contribution to their super account
• Arranging for Contribution Splitting (also known as Super Splitting)

Spouse superannuation contributions can now be made for spouses earning up to $40, 000 per year. If a spouse earns less than $37, 000, the maximum tax offset of $540 can be claimed when contributing a minimum of $3, 000 to their super. Anything contributed that is more than $3, 000 will not receive the spouse contribution tax offset.

This tax offset cannot be claimed if:

• A spouse has exceeded their non-concessional contributions cap for the financial year.
• Their super balance is $1.6 million (for 2020/21) or more on 30 June of the previous financial year in which the contribution was made.

Another way to inject funds into your spouse’s super is to choose to have some of your own super contributions put into their super account. This is fine as long as they have not reached their preservation age yet, or are between their preservation age and 65 years and not retired.

Super contributions can only be split in the financial year immediately after the year in which the contributions were made or in the same financial year as the contributions were made only if your entire benefit is being withdrawn before the end of that financial year as a rollover, transfer, lump sum or benefit.

There are two types of contributions that can be split:

• Employer contributions – the most common form of super contributions to split
• After-tax contributions – money that you voluntarily deposit into your super after tax.

Always discuss starting spousal co-contributions to super with your accountant or financial advisor for help and guidance prior to starting this process.

What to do with your Lost Super

After COVID 19’s impact on the world, an influx of employees who had lost their jobs fell into the job market. Many of these came from companies that couldn’t afford to continue their employment. As a result, many individuals had to seek alternative employment, or draw from their super. Some individuals took on multiple jobs to pay bills, and others drew from the super that they had accumulated in the government’s early release scheme specifically for coronavirus related income loss.

Super is held by superannuation funds, and accumulates as a result of how much super an employer pays to the employees’ funds. Many Australians may find that they actually possess multiple super accounts as a result of having “lost” their super accounts during changeovers. It can also happen as a result of changing names, moving addresses, living overseas or changing jobs.

Australians can use the ATO’s online tools to:

• View details of all of their super accounts, including lost or unclaimed amounts
• Consolidate eligible multiple accounts (including any super held by the ATO)
• Withdraw your super held by the ATO when certain conditions are met.

As superannuation funds often have fees associated with their upkeep, as well as insurances that may be tied into it (such as life, total and permanent disability and income protection), it’s important to consult with providers before accounts are consolidated.

https://www.ato.gov.au/Individuals/Super/Growing-your-super/Keeping-track-of-your-super/#Lostsuper

Pros and cons of home reversion

Super (AU): Pros and cons of home reversion

Home reversion is when you sell a share of the future value of your home whilst still living there. You receive a lump sum payment and continue to own the remaining share of your home equity.

Pros

• You are able to continue living in your home after you sell the share
• You can conduct renovations or maintenance that your home may need with the lump sum payment you receive
• You can use the lump sum for any urgent needs such as medical treatments
• The lump sum could help you secure accommodation till your home sells

Cons

• You will own the lower share of the equity in your home
• Transactions and costs can get complicated and it may be hard to navigate that
• Your eligibility for Age Pension might also be influenced
• Your ability to afford aged care could be affected
• You might end up eating into money that you need for the future – such as for medicare
• You might be locked into fewer options if your circumstances change
• If you are the sole owner and someone else lives with you, they may no longer be able to live in the house if you move out or pass away

What is the transfer balance cap?

The transfer cap refers to the amount of money that can be transferred from your superannuation account to your tax-free ‘retirement phase’ account.

At the moment, the transfer balance cap is $1.6 million and all individuals have a personal transfer balance cap of $1.6 million.

Exceeding the personal transfer balance cap means that you have to:

• Commute the excess from one or more retirement phase income streams.
• Pay tax on the notional earnings related to that excess

The amount in your retirement phase account may grow over time, due to investment earnings. Although this may grow beyond the personal transfer cap, you will not exceed the cap. However, if you have already used all your personal cap, and then your retirement phase account goes down, you cannot ‘top it up’.

The rules applied to capped defined benefit income streams are different from other income streams – this is because you can’t usually transfer or commute excess amounts from other streams.

Choosing investment options in your super

Many Australians ignore the decision of choosing investments for their super and often end up in the ‘default’ option as they make no effort to choose otherwise.

Default options that aim for ‘balanced’ or ‘growth’ investments tend to have 60-80% of funds invested in shares and property. This approach for investment is based on the best-suited strategy for a large number of members across the years they will be investing.

However, the default options may not be the best for your financial circumstances and risk profile. Understanding different investment options and how risk assessments work will help you choose better investment options.

Further, aim to change investment options over time rather than sticking to the same one. For example, you could consider changing options once you begin receiving a pension.

SMSF Pensions

SMSF funds can provide pension or lump sum benefits during retirement. Retirement is a condition of super release if you have reached your preservation age. Depending on your date of birth, your preservation age will be between 55 and 60. The benefits from your super are tax-free once you are over the age of 60.

If you plan to start a super pension income stream, then the funds from your accumulation account need to be transferred to your retirement account to fund your pension. Your retirement account has a cap of $1.6 million, so you can transfer that amount as a lump sum but no more. The earnings on these funds are tax-free.

Each year, you need to withdraw a minimum percentage of your account balance from the retirement fund. This minimum percentage will depend on your age.

Alternatively, you can start your Transition-to-retirement pension if you have reached your preservation age but you are still working. However, unlike the funds that support your super pension once you begin retirement, these are taxed at 15%.