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The news of a new arrival is a symphony of emotions – joy, excitement, and perhaps a touch of apprehension. Yet, amidst this beautiful anticipation, a practical reality often emerges: the financial implications of taking time off work.
For financial advisers and professionals in the financial services sector, guiding clients through this period isn’t just a service, it’s an opportunity to empower families during one of life’s most significant transitions.
New parents frequently grapple with questions about maintaining income, managing increased household expenses, and the long-term career implications of taking time away.
In Australia, a robust framework of government and employer-provided schemes supports parents taking time off to care for a newborn or newly adopted child. Understanding these entitlements is the foundational step in effective financial planning.
The government’s Paid Parental Leave (PPL) scheme provides eligible primary carers with up to 20 weeks (100 days) of payment at the national minimum wage, typically paid fortnightly. This offers flexibility, allowing it to be taken in a continuous block or in up to two blocks within 24 months of the child’s birth or adoption.
To claim the PPL, people need to verify current work and income test criteria on the Services Australia website. Generally, this involves having worked for at least 10 of the 13 months prior to birth/adoption and meeting income thresholds.
Up to two weeks of Partner Pay, also at the national minimum wage, is also available to eligible fathers or partners, which offers vital support in the immediate post-arrival period.
Plan ahead for benefits
To maximise these government benefits, pre-emptive applications may avoid payment delays.
There is an option to take PPL in multiple blocks to strategically extend financial support, to integrate with any employer-provided benefits to optimise your overall leave strategy.
Many Australian employers offer their own parental leave benefits, often more generous than government entitlements, and these schemes vary widely, making a thorough review of available options essential.
Look for the duration of leave (how much paid and unpaid leave is available), the pay level (whether it’s full pay, a percentage of salary, or a fixed amount), whether superannuation contributions will continue during paid or unpaid leave, and any specific conditions for access, such as length of service.
To maximise these employer benefits, you may be able to strategically blend government and employer leave to get the most time off and income. For example, you might use employer-paid leave first, then transition to government PPL. In some instances, particularly for highly valued employees, there might even be scope to negotiate terms. It’s also worth discussing any available return-to-work bonuses or flexible work arrangements.
Budgeting is a must
Even with government and employer support, parental leave often means a temporary income reduction alongside new baby-related expenses.
This is when a robust budget isn’t just helpful it’s essential to plan well before the baby’s arrival, to account for the impending changes.
This involves meticulously tracking current expenses for at least a month to understand existing cash flow, researching and estimating both one-off baby purchases (like a cot, pram, car seat) and ongoing expenses (such as nappies, formula, wipes, and potential future childcare costs), and factoring in increased utility bills.
People should also project their expected income during leave, incorporating all benefits, to identify any potential gaps and, based on these projections, pinpoint non-essential spending that can be reduced or eliminated both pre-leave and during leave, like dining out or subscriptions.
Crucially, you should aim for a financial buffer or emergency fund covering three to six months of essential living expenses, as this serves as a vital peace-of-mind fund.
Once leave commences, active budget monitoring and flexibility are key. Review income and expenses weekly or fortnightly to stay on track, focusing spending on essential baby and household items while deferring non-urgent purchases.
You can significantly save money by embracing second-hand baby gear, clothing, and toys, and by doing more meal planning and cooking at home to reduce takeaway and dining out.
It’s also wise to leverage free community resources like playgroups, libraries, and support groups for social interaction and information.
Finally, you should be agile and prepared to adjust their budget if actual income or expenses deviate from initial projections.
The ‘motherhood super penalty’
As a financial adviser, one of the most persistent risks I see to a family’s long-term financial security is the “motherhood penalty.” This is a critical financial planning problem that arises when one partner takes time out of the workforce or reduces their hours to raise children, causing their superannuation accumulation to flatline. This disadvantage is a solvable problem, but it requires a proactive strategy beyond just relying on the standard Superannuation Guarantee. It’s essential to first diagnose the financial impact and then outline the specific strategies we can use to correct it.
The financial diagnosis of the motherhood penalty is threefold. First, there’s the immediate contribution interruption, where a $0 income during a career break means $0 in employer super. This is followed by a period of reduced accumulation if the parent returns to part-time work, structurally widening the super gap every year. Finally, and most critically, is the compounding deficit—the lost decades of compound interest on those missed early contributions. A significant and positive legislative change now helps to mitigate the first part of this problem. If you care for a child born or adopted from 1 July 2025, the ATO will now pay superannuation on government-funded Parental Leave Pay. This is known as the Paid Parental Leave Superannuation Contribution (PPLSC). If you receive Parental Leave Pay from Services Australia for the 2025–26 period onwards, the ATO will pay this new contribution. It’s important to note that claims for the Parental Leave Pay itself will continue to be managed through Services Australia. While this is a major step forward, it doesn’t cover extended unpaid leave or the long-term part-time gap, which is why the following strategies remain critical.
To counteract this, we must adopt a “family balance sheet” approach, treating super as a shared asset. The most equitable and effective strategy is Concessional Contribution Splitting. This is not a new contribution but a transfer that allows the high-income earner to instruct their super fund to move up to 85% of their concessional (before-tax) contributions from the previous financial year into their partner’s account. This is a strategic transfer that acknowledges the non-financial contribution of the care-giving partner, ensuring both share in the family’s total retirement savings.
The second strategy is leveraging the Government Co-Contribution, which is an exceptional, risk-free return on investment. The government provides a “matching” contribution when you make a personal, after-tax contribution to your own super. For the 2025/2026 financial year, the government matches your contribution at $0.50 for every $1 you put in, up to a maximum payment of $500. To get this full amount, you must contribute $1,000, have an income below $47,488 (with a tapered rate up to $62,488), and earn at least 10% of your income from employment. This is a 50% risk-free return, turning $1,000 into $1,500 instantly.
The third tool is the Low Income Superannuation Tax Offset (LISTO), which is an automated offset designed to protect low-income earners from the 15% contributions tax. If your adjusted taxable income for the 2025/2026 financial year is $37,000 or less, the ATO will automatically refund the 15% tax paid on your concessional contributions, up to a maximum of $500. This payment is made directly to your super fund after you lodge your tax return, ensuring that 100% of the super you do earn while working part-time is preserved for your retirement.
A final, powerful strategy is the Spousal Contributions Tax Offset, which provides a direct financial incentive to the contributing spouse. This is different from splitting as it uses after-tax money. If the receiving spouse’s income is $37,000 or less (tapering off at $40,000), and the contributor makes a $3,000 after-tax contribution into their partner’s super, the contributor can claim a $540 tax offset on their personal tax return. This is a “win-win”: the receiving spouse’s balance is boosted by $3,000, and the contributing spouse gets a $540 reduction in their tax bill.
The “motherhood penalty” is a significant financial headwind, but it is not insurmountable. Leaving it unaddressed is a passive decision that can jeopardize a secure retirement for one partner. By implementing these specific, strategic measures, you can transform superannuation from an individual’s account into a truly shared family asset. I urge you to review these strategies as a couple and integrate them into your long-term financial plan.
Watching investments and insurance
Beyond basic budgeting, several proactive strategies can enhance financial resilience. The most potent strategy is to start saving and investing well in advance.
Even small, consistent contributions build a substantial cushion, and people might consider setting up a dedicated savings account specifically for parental leave funds and automating regular transfers to ensure consistent saving.
For those with existing investments, it’s wise to review your portfolio’s alignment with their risk tolerance and time horizon, potentially adjusting contributions temporarily to prioritise cash flow.
You may also like to temporarily reduce mortgage or loan repayments, but always with a clear understanding of long-term interest implications.
While not always possible for busy new parents, exploring flexible income diversification can add security. This might involve considering part-time freelance or gig work if energy and time allow, or, if prior investments permit, leveraging passive income streams as a valuable supplement.
Finally, ensure robust insurance coverage is in place. This includes reviewing health insurance for coverage during pregnancy, childbirth, and newborn care, understanding income protection terms for support during illness or disability, and reassessing the adequacy of life insurance given the new financial responsibilities.
Planning for parental leave isn’t merely about managing money; it’s about investing in a foundational period of family life.
By understanding benefits, mastering budgeting, and proactively enhancing financial security, new parents can confidently embrace this transformative experience.
Financial advisers are pivotal in guiding clients through parental leave planning. Find a Planner here.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
Author disclaimer: The information provided is general in nature and does not constitute personal financial advice. The 2025/2026 financial year thresholds are used for illustrative purposes. You should consider your own financial situation and objectives before making any decisions and consult with a licensed financial adviser.
