If you’re married, a super splitting strategy is worth considering because it may help maximise your retirement benefits and provide an avenue to creatively share them.
This strategy is particularly effective if there is an age gap between you and your spouse.
How it works
Since 1 July 2007, super benefits have been paid tax-free after the age of 60. This means you no longer have to consider accessing two separate reasonable benefit limits (RBLs) and the advantage of two-rate thresholds remains only for members who are aged between 55 and 60 when they receive their super benefit. So why would people still consider splitting super with their spouse?
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The answer is simple. By using a super splitting strategy with your spouse, you may be able to increase age pension entitlements, access more tax free income sooner, or enable spouses to top-up their super when they experience employment breaks.
Increase your age pension entitlements
The older spouse may qualify for a higher age pension.
By splitting super with a younger spouse, you can shield assets from Assets Testing, which may qualify you for a higher age pension entitlement. Assets held in super by pensioners and allowees who are between 55 and age-pension age are exempt under both the Income and Assets Test.
Access tax free income from age 60, sooner
Suitable for a couple where one spouse is aged 60 or over.
In the case of a couple with one partner aged 60 or more, splitting contributions to the older spouse may enable earlier access to tax-free income. This is because super benefits are paid tax free after a person reaches the age of 60 and retires.
This strategy can help increase the total income a couple is living off simply through splitting their contributions to the older spouse. The younger spouse splits their contributions with their older partner, who, once they reach 60-years-old, can access these additional contributions tax free and earlier than the younger spouse. This may benefit the couple by effectively reducing their overall assessable income.
Top up your spouse’s super
Use this if your spouse has less super than you or needs to cover relevant insurance premiums.
Most couples have significantly different superannuation balances due to different work patterns.
Women in particular often experience breaks in their employment through child bearing and therefore their superannuation also experiences a break from ongoing contributions. In this example, a spouse can help balance the situation through super splitting, adjusting for the time when the mother has not been earning an income.
Another benefit of super splitting is that if insurance is held through a spouse’s super account, splitting contributions to that spouse can then be used to fund ongoing insurance premiums, regardless of whether that spouse is contributing to super or not. There is also the option of taking out additional cover without worrying whether benefits will exceed concessional tax limits.
A super splitting strategy may also be of particular benefit to low income or non-working spouses by allowing them to control their own super and have their own income in retirement.
Some legislative risk
Though super splitting is still a relevant strategy, as with all superannuation legislation there is a risk that the rules could change in the future under this or a new government.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
