Is super paid on long service leave?

Generally, super is paid on long service leave – but there’s a bit more to it. If you decide to take your long service leave during your employment, you'll be eligible for the Superannuation Guarantee (SG) contributions from your employer because it counts as ordinary time earnings (OTE). But if you choose to cash out your unused long service leave as a lump sum payment when your employment ends, you won't get SG contributions paid on that amount. 

What impact does super and long service leave have on retirement planning?

When you think about long service leave, you might be focused on the here and now. But for those who are nearing retirement age, there’s more to consider when deciding whether to use the long service leave while remaining employed or whether to cash it out.

Continue to build your super

If you take your long service leave as time off during your employment, your employer will continue to make contributions to your super. This means that, even as you're not actively working during this period, you're still building up your retirement nest egg with additional funds.

Now, you might be thinking: "I'm close to retirement, so how much of a difference can these additional super contributions really make?" While it's true that the impact might be less significant than for someone in their 30s or 40s, these contributions still matter. Every dollar counts, especially as these years may likely be your highest-earning ones. In the time leading up to retirement, maximising your super balance could help make a difference to your later years.

Potential tax benefits

One of the reasons why super can be a great way to save for retirement is because it can be tax effective. SG contributions made to your super fund by your employer are generally taxed at 15%, which is often lower than income tax rates. The same goes for your super investment earnings which are generally taxed at 15% while your account is in accumulation phase. On top of this, when you convert your account to an income stream, earnings within the fund are generally tax-free. However, if your annual income and concessional super contributions are above $250,000, there’s an extra tax charged at 15% of the excess over the threshold ($250,000) or the taxable super contributions, whichever is less. This is called the Division 293 tax¹.

Importantly, once you reach the age of 60, withdrawing funds from your superannuation account is generally tax-free². So, not only can you potentially build up more in your super thanks to the lower tax rate, but you generally also get to enjoy those savings without having to pay tax once you reach the age of 60. This could be a big one to think about if you’re aged 60-plus or close.