Splitting the difference

Splitting the difference

29 October 2018 - posted in Pre-Retirees and Retirees by John Oliver


In recent years there have been a number of changes to superannuation, some which will have more effect on wealth accumulators than others.

Some of the proposed changes should only impact a small minority. Others however affect most people saving for their retirement.

In particular the new concessional contribution  limits reduced to $25,000 per annum  (which includes super guarantee and salary sacrifice) could have a significant impact on the retirement savings of those in their latter years.

Another change  which admittedly will not affect a significant number of people is the $1.6 million cap on super benefits that can be transferred into the pension phase  and enjoy the advantage of tax-free earnings. It is a limit per person so for a married couple, if the super benefit is mostly in one partner's name there is a good reason to try and move funds into the other partner's name.

Because of this change and other changes that have occurred in the past, I  have for a long time believed in contribution super splitting. It is an excellent strategy but is unfortunately not taken up by many people. Perhaps it is because  many people do not seek advice and therefore do not know about it.

In essence any concessional  contributions (super guarantee and salary sacrifice) made in a financial year can be transferred into their spouses super account after the financial year has ended. This is any amount up to the $25,000 per annum limit. 15% contributions tax is deducted before the transfer so a maximum of $21,250pa can be moved across.

This is a good way to reduce your balance and increase your spouses balance  thereby allowing you to take full advantage of the tax-free earnings in the pension phase. As I said not a lot people will be in the situation of exceeding the $1.6m cap and need to transfer funds but I think it is still worthwhile for a number of reasons.

Firstly if one spouse is older than the other it will allow access to the funds sooner than the other. Secondly many people like to have even balances so they receive an equal income in retirement. Thirdly it may assist with the age pension if one partner is older than the other as super is exempt from the assets test if they are under age pension age.

Finally, who knows what changes to super may be introduced in the future. Splitting funds reduces the impact that any changes may have on your benefit. If you need to discuss this in more detail please consult a qualified financial adviser.

Disclaimer:              This information should not be relied upon as a substitute for financial product advice.  Goldsborough Financial Services has not taken into account the investment objectives, financial circumstances or investment needs of any particular person.  You must therefore assess whether it is appropriate, in the light of your own individual circumstances, to act upon the relevant information.  We strongly recommend that you seek professional advice before making any investment decision.


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