Why on earth would I do that?
That's a good question and you'd have to think that most struggling parents will simply spend the bonus on something useful. If you can afford to live without the money, the Government will allow you to use it to top up your super. Marc Mengler, managing director of the master trust Navigator, says this can be helpful to women who are often disadvantaged when it comes to saving for their retirement because of time taken out for maternity leave and child-rearing. Projections show that by 2030 the average woman's super fund will be worth just $90,000 only 70 per cent of the average man's fund. "For many families, the baby bonus is additional funds they hadn't counted on," says Mengler. If they commit to putting it into super, the long-term benefits are substantial, he says.
How substantial?
It depends on the amount of your bonus and the returns achieved by your super fund (after fees and any taxes). Mengler's somewhat optimistic projection is that someone getting the maximum baby bonus of $2500 for five years and investing it for 35 years at 7 per cent after-tax could boost their retirement payout as much as $94,000. Even if you reckon you should count on a lower earnings rate, the benefits of socking that money away now are still impressive.
How does it work?
The Federal Government has legislated to allow baby bonus recipients to contribute that money to super. But Peter Hogan, the national technical services manager with Colonial First State, says the legislation doesn't limit you to the amount of your baby bonus. So long as you're eligible, you can contribute as much or as little as you like. He says the aim of the legislation was to allow non-working parents who may not otherwise have been able to contribute to super to put some money aside for their retirement. For example, while the rules allow individuals to contribute for up to two years after they have stopped working, so long as they're entitled to the baby bonus they can continue contributing after that time. The baby bonus is payable for up to five years after the birth of your first child. (See I can do that, June 26).Do I get any tax breaks for contributing? It appears so. Brian Beattie, the technical manager with Norwich Union, says when the measure was legislated there were no amendments to the provisions covering tax deductions for super. Assuming the Government doesn't make such amendments, that means baby bonus recipients who are not receiving super contributions from an employer should be able to claim a tax deduction as an "unsupported person". This gives you a full tax deduction on the first $5,000 you contribute, plus 75 per cent of any excess.
This may not, however, turn out to be as generous as it sounds because you need other income to offset the tax deduction against and the whole point of the baby bonus is that it helps to make up for your loss of income. Beattie says some non-working or low-earning parents may alternatively be able to transfer their bonus entitlement to their spouse, who can contribute it to super on their behalf. This way, the working spouse could claim the spouse rebate on the contributions. There is an 18 per cent rebate on contributions of up to $3,000 a year made on behalf of a non-working or low-earning spouse.
Are there any rules on where or how I can contribute? Beattie says you have a year after being declared eligible for the bonus to contribute it to super. You can contribute the money to any super fund of which you are a member or join a new fund. The super fund, he says, may need to satisfy itself that you are eligible to contribute to super, but you can satisfy this requirement by notifying it of your eligibility for the baby bonus. Beattie says the best move is probably to use your existing super fund, as that ensures you won't be doubling up on fees and charges.
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