By way of background since May 2007 it was common to increase the older person in the relationship superannuation balance at the expense of the younger spouse.
Explaining your Spousal Balance Superannuation
Let’s generalise and say for example you are born after 1965, say, you are aged 50 and your spouse is aged 45.
In order to gain access to your superannuation you need to satisfy a condition of release and be aged 60. Accordingly, if you felt you would like to retire around age 60 (your spouse age 55) it would be advantageous to have the majority of the superannuation in your members account as your spouse would not be able to access his/her super. To explain this another way, you may be able to get access to your super in 10 years whilst your spouse will have to wait at least 15 years.
Another attractive feature of superannuation is that you can continue to work and access your superannuation at age 65 regardless, whether you are working or not, on attaining age 65 is a condition of release. Again as you would reach age 65 in my example five years before your spouse it was advantageous to have the majority of funds in your members account.
As a result of the recent budget, this strategy of people with larger superannuation balances planning to maximise their superannuation may have changed. This will be the case where;
- one partner is earning a high salary and the spouse is on a significantly lower salary,
- where the older partner has made significant non-concessional superannuation contributions, or
- where the younger partner may be a stay-at-home mother.
You would be aware that the government has introduced a $1.6 million transfer balance cap on individual retirees. This means, that in the past it may have been better for the older partner to have say, $1.7 million of super and the younger spouse $300,000 at the time of retirement. As you will get access to the $1.7 million sooner rather than later.
However, now for tax reasons, it may be better for both parties to have about $1 million each, so that they both remain under the $1.6 million transfer balance.
So what can be done to even up the balances? Well one thing we cannot do is simply transfer the balance from one spouse to another where neither have satisfied a condition of release.
One strategy that you can implement however is contribution splitting. Contribution splitting is where you allocate 85% of your superannuation contributions to your spouse. This will assist your spouse to increase his/her balance at the expense of your own balance. Please note, however, to implement this strategy it must be permitted by the superannuation trust deed.
Another strategy would be to make future non-concessional contributions to your spouse so that his/her balance is increased, rather than making those contributions to your account.
Depending on the difference in your account balances, neither of these strategies may make an immediate difference, therefore it is imperative to consider these and other strategies sooner rather than later so that you achieve the optimal result prior to retirement.
Should you have any queries in relation to superannuation strategies please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.