Around 3 Million Australians Are Unpaid Caregivers—and Most Face a Super Risk…

During National Carers Week, from October 13 to October 19, Australia recognizes the 3 million individuals who provide essential, unpaid care to relatives or friends with disabilities, mental health conditions, chronic or terminal illnesses, or age-related needs.

Caregivers often have to sacrifice paid employment, missing out on compulsory superannuation contributions, which can have a long-lasting impact on their retirement savings. Research by Vanguard highlights the financial toll of caregiving, showing that the loss of Superannuation Guarantee (SG) contributions over time significantly impacts retirement balances.

The Cost of Caregiving on Retirement Savings

We estimated the potential superannuation impacts for individuals taking one year of carers’ leave compared to those who remain in the workforce. Adjusted for inflation, real wage growth, and calculated in today’s dollars, these estimates show the effect of missing SG contributions, assuming no future catch-up contributions or career growth adjustments.

25-year-old: With a median wage of $43,200, one year of carers’ leave would reduce retirement savings by approximately $12,900 by age 67.
35-year-old: Based on a $62,500 median wage, one year of carers’ leave could result in a $14,300 reduction.
45-year-old: For someone earning a median wage of $65,600, a year off could lead to $11,500 less in retirement savings.

Longer periods out of the workforce have even greater impacts. For those working part-time as caregivers, a five-year period with a 50% income reduction results in the following estimated gaps:

25-year-old: $26,100 less than a full-time counterpart.
35-year-old: $29,900 less.
45-year-old: $24,300 less.

These calculations assume the current SG rate of 11.5%, increasing to 12% next year, with a 6.5% investment return, 1.2% real wage growth, and a 15% tax on SG contributions.

Mitigating the Financial Impacts

While caregiving can take a toll on superannuation balances, there are ways to reduce the impact:

Personal Concessional Contributions: Upon resuming full-time work, consider making concessional contributions (taxed at 15%) on top of SG contributions. Small contributions, like $20 per week, can accumulate significantly over time.
Federal Co-contribution: Eligible individuals can receive an automatic $500 annual superannuation co-contribution. Combined with personal contributions, this can offset the superannuation gap.
Catch-up Contributions: Those with a super balance below $500,000 can use unused pre-tax contribution allowances from previous years over a five-year period, offering an opportunity to replenish superannuation.
After-tax Contributions: Using funds from an inheritance or asset sale, individuals can contribute up to $120,000 per year, or up to $360,000 in one year under the three-year “bring forward rule.”

For caregivers looking to protect and grow their retirement savings, consulting a licensed financial adviser can provide valuable, personalized strategies for managing superannuation over time.

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General advice warning

Vanguard is the product issuer and the Operator of Vanguard Personal Investor. Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270 is the trustee of Vanguard Super (ABN 27 923 449 966) and the issuer of Vanguard Super products. We have not taken your objectives, financial situation or needs into account when preparing this report so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs and the disclosure documents of any relevant Vanguard financial product before making any investment decision. Before you make any financial decision regarding a Vanguard financial product, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the TMD of a Vanguard financial product before making any investment decisions. You can access our IDPS Guide, Product Disclosure Statements, Prospectus and TMD at vanguard.com. au or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This report was prepared in good faith and we accept no liability for any errors or omissions.