Gov blocks superannuation on parental leave: Here’s what you can do instead
The government has decided it won't be including super payments in its paid parental leave policy, a move that will almost exclusively impact women.
It was revealed on Tuesday, on International Women's Day, that the government has decided against including superannuation in its paid parental leave scheme. This decision will overwhelmingly affect women, as 99% of people who take parental leave under this scheme are women, according to Industry Super.
So, what does this mean exactly?
If you're eligible, you can access up to 18 weeks of paid parental leave from the government if you have a baby and/or are the primary carer of a new child. It's the main form of paid parental leave in Australia, as it's not compulsory for employers to offer their own parental leave policies (although many do). This government parental leave is paid at the minimum wage, and, unlike other forms of paid leave, it doesn't include any superannuation.
If you take a year off work to raise a child, this means you could be missing out on super payments that whole time. And if you have more than 1 child it could mean years of no super. This has a snowball effect on women's superannuation balances by retirement, as going without contributions for several years means your balance misses out on those compound investment returns (but you're still being charged fees!).
There have been widespread calls from industry groups, the private sector and even internally within the government itself to include super payments on the government-paid parental leave scheme. However, the government has decided against this.
What's the impact of missing super payments?
It's difficult to estimate the impact of missing super payments as it depends on how much you earn, how long you take off work and whether or not your employer will be paying you any super while you're on parental leave.
According to an Industry Super Australia report, 171,000 women missed out on $216.7 million in super payments in the 2019/20 financial year alone. Over a million Australian women have missed out on more than $1.6 billion in superannuation in the last 10 years due to this scheme not including super.
The report found that a woman on a median income with 2 kids would retire with around $26,000 more if super was paid on both employer and government-funded paid parental leave
What can I do about it?
If you're planning to go on parental leave soon, or know that you will in the future, there are a few things you can do to help ensure your super balance doesn't suffer too much.
- Look at your current workplace policy. If your employer offers paid parental leave, speak with them about continuing to pay your super guarantee payments too. If your employer doesn't offer any parental leave at all, you could consider switching jobs to one that offers a better policy.
- Check that you don't have multiple super funds. If you do, you'll be paying multiple sets of fees while making fewer (or no) contributions. Here's how to consolidate your super into a single fund.
- Look into superannuation splitting. Consider having your partner make contributions into your super instead of theirs to help supplement your lack of contributions while on leave (read more about this here).
- Choose a better fund. Even if you just have 1 fund, it's worth comparing super funds now to make sure it's charging low fees and earning good returns. If it's not, it's better to switch now rather than wait until after you take time out of the workforce.
If you haven't looked at your super in a while, it could be time to switch. Compare super funds to see how your current fund stacks up and, if you decide it's time to switch, you can easily change super funds with our 4-step guide. Need help deciding on a fund? Finder's best super fund picks might be a good place to start.