What moving to part-time means for your super

Your super includes a defined benefit component. This is based on a formula that uses two major elements:

• Your years of service. If your hours reduce because you go part time, then this feeds into the formula and reduces the amount of the defined benefit component for the period you are working part-time. So your super grows at a slower rate while you’re working part time.
• Your superannuation salary. If you go part time:
  • with the same full-time salary, the defined benefit you’ve got now won’t be impacted by going part-time
  • with a lower full-time salary than you’re on now, the super you’ve got now could drop because your lower superannuation salary feeds into the formula and will immediately reduce your defined benefit at that point in time. Remember, your final defined benefit is usually based on your full-time salaries in the years before you leave.

You also have an accumulation component which is made up of contributions from you and your employer. You get the total of these contributions with investment earnings, minus fees and taxes. Going part-time means these contributions may be less, which means the accumulation component of your super will grow at a slower rate.

Your super benefit is the total of all the contributions that you and your employer put into your super, plus investment earnings minus fees and taxes. Going part-time means that your employer and member contributions may be less, which means your super will grow at a slower rate.

Mark is a member of Division 3. After turning 60 in 2020, he decides to drop down to part-time work until he retires at 65. Because Mark is a member of Division 3, his super includes a defined benefit component that’s determined according to a formula. The two key elements of this formula are:

• His credited service

By going part-time, Mark will be working 70 hours per month, down from 140. This will reduce his credited service for the period he has gone part-time by 50%. If Mark goes part-time at 50% for 5 years, the credited service accrued over that period will be 2.5 years.

• His Superannuation Salary

As a member of Division 3, Mark’s Final Average Salary (FAS) is determined as the greater of:

• the highest average annual Superannuation Salary calculated over the any consecutive three complete financial years in the most recent ten year period; and
• the average annual Superannuation Salary calculated over the most recent period of three years

Superannuation Salary is generally reported on a full-time basis. This means that if Mark receives the same full-time equivalent Superannuation Salary on a pro-rata basis for his new hours, the Defined Benefit he has now will not be impacted by his going part-time – only the accrual of credited service is affected.

However, If his full-time salary is reduced, this may have an impact on his FAS if that new salary is factored into the rules above.

After working part-time for five years, Mark decides to retire at 65. Assuming he has no voluntary accumulation accounts, here is how his retirement benefit is calculated:

Formula = Accrual*FAS*Credited Service

To help you save for your retirement, the Federal Government provides a range of tax concessions.

Sometimes life throws us exciting opportunities that are hard to turn down, like an internal transfer overseas or further study. If you decide to take leave without pay, the arrangements with your super may change.

Whether you’re just starting out in your career, you’re winding down at work, or you’ve already set out on your retirement adventures, there’s never a bad time to seek advice.

Understand your super and the simple steps you can take to stay in control.