Anne Fuchs: G'day, and welcome to Super Insider. It has everything you need to know, and it's a podcast that's going to make sure you live your best possible retirement. My name is Anne Fuchs, and I'm the Executive General Manager of Advice, Guidance and Education at Australian Retirement Trust. Today, we're talking about couples. We're not talking romance, though. We're not talking about date night. We're not talking about therapy. No! We have the top questions from you, our members and listeners, about what couples need to know to live their best possible retirement. And I'm thrilled to be able to introduce our education specialists, April Smith and Kane Everingham, to take you through that.
But before I do, of course, it's important to remind you that this is general information only. You've got to make sure it's right for you. Get some financial advice, pick up the phone and call your super fund, call us at Australian Retirement Trust. But have a listen. Couples, it's all about you.
Kane Everingham: Thanks, Anne. Hello, everyone, and thank you for joining us for today's episode about superannuation strategies for couples. My name is Kane. My colleague, April, is also joining me.
April Smith: Hello.
Kane: And we are part of the Education team at Australian Retirement Trust. Now, if you're looking to navigate superannuation and retirement planning as a couple, then today's session is for you. And if you're single, listen in because this could be really good information when you meet that Mr or Mrs Right in the future.
April: Special someone.
Kane: Now, before we go any further, I do want to touch on one of the most common questions we get asked, ‘Why can't I have a combined super account with my spouse? We can do it with bank accounts. Why can't I do it with super?’ Legally, you can't; you must have a separate account. Even with a self-managed super fund, members of the couple will still have their own balance. So, all the individual super rules, like contribution limits, etc., will apply to you individually.
Although you can't combine your super, you can move some of your super or some of your money into your spouse's super fund. You might want to do that for different reasons, and that's what today's episode is all about. We're going to touch on those.
Now, just a heads up, through today's episode, we'll primarily use the term ‘spouse’ as we go through. Please know that when we say that it's in line with the ATO definition of a ‘spouse’, which includes a person of any sex you're in a relationship with on a genuine domestic basis. Today, we will look at several super strategies for couples that you may want to consider. I'll touch on those briefly now, and then we'll get into more detail.
Why would I consider strategies to move some of my super to my spouse? There are a number of reasons why. We often see, 'I just want to even up my balance.' Oftentimes, in a couple, you'll have one member of the couple who's taken time out of work to, say, raise kids or look after elderly relatives, so they're not working. Their super balance won't be as advanced as their partner's. Often couples want to even up those balances. It can also enable earlier and tax-free access to super funds. That sounds interesting. We'll find out more. It can be particularly important if there's a difference in age in the couple. There can also be a strategy there to boost Age Pension entitlements. Again, that can be very important if the couple has an age gap.
Another one is that there could be a tax offset for a higher income earning partner. If their partner is earning a lower income, there can be some tax offset benefits. We'll launch into the 2 most well-known strategies, and they are (1) making a spouse contribution and (2) what's also known as super splitting. April let's get you to open things up with spouse contributions.
April: A spouse contribution is where, basically, if we've got a spouse who is a lower-income earner, we're looking at topping up their superannuation. Maybe they've gone part-time because they've had children. What we're doing is effectively putting in—at the time of recording, this is what it is—$3,000 into their account. Then, the higher income earner can claim that as a tax offset.
Those figures might change. Just do some homework on this one. Effectively, if my spouse is earning under $40,000 and I put $3,000 into their account, then I may be eligible for a tax offset of 18% or up to $540, depending on their salary. So, that is the spouse contribution. Kane, please take it away with what spouse splitting is.
Kane: 'Super splitting,' you might have heard that term. If you haven't, again, there's lots of help online. But super splitting essentially means transferring part of your before-tax, or you might know the official term 'concessional contributions'. You're just splitting some of your before-tax contributions from your own super fund over to that of your spouse.
A very common example is that I might want to split up to 85% of my before-tax contributions to my partner's super account. 'Why is it 85%?' I hear you say. 'What's happening to the other 15%?' That's what has to go to the government in tax when you make a before-tax contribution to super.
I'll use an example. Let's say I salary sacrifice $10,000 into my own super account over the course of a year. I can choose to split 85% of that or, in that example, $8,500 over to my partner's super account. That's a strategy available to me as a couple. Be aware that there are obviously eligibility requirements. Please make sure that you are eligible before you try to launch into this. It's a good idea to check with your super fund.
What types of contributions can you split? What makes up that part? It's any employer contributions or salary sacrifice contributions you've made. Or they may even be an after-tax contribution you've made and then made a tax deduction claim on them.
Any contributions you make, even if I split them, if I stick with my example of splitting, say, $8,500 to my wife, the money I put into super still counts towards my contribution cap. It doesn't reduce it. As I said, check eligibility before you launch into something like this. There are a lot of resources online if you want to find out what those are.
We've gone through spouse contributions and super splitting. April, we should run through some examples of why you might shift your funds around between each other in a relationship.
April: Say, for example, we've got Joe, and we've got Hannah. Hannah's 55. Joe is 45. There's a 10-year age gap there. What they're looking at doing—their plan is for Hannah to retire at 60. She's willing to take the Band-Aid off and go grey nomad all over Australia and wants Joe to come. The thing is though, Joe can’t access his super account until he reaches age 60. So what Joe is going to look at doing is splitting up some of his super into Hannah's account, so they've got a bit more money to play with for when Hannah turns 60 and they might be able to retire Joe as well at the same time and enjoy that Winnebago around Australia.
That might be the plan - retiring with Hannah, the oldest spouse. Another reason for Joe moving his funds up is they might want to reduce debt. They might have a mortgage over their head, which hurts them in their pocket. Joe might want to shift it up to Hannah's account, where she can start accessing that superannuation earlier to pay off those debts. That might mean Joe is not able to retire completely with Hannah, but he might be able to go down to 3 days a week at work. It's just about shifting the money around and doing what you need to do effectively. Is it travel? Is it paying off debt? Is it dropping your hours? Is it retiring earlier? There are all those options you can use with super-splitting.
And there are also Age Pension entitlements that they could consider. Hannah could look at them when she approaches the pension age. Kane, can you take it away with the Age Pension?
Kane: You've just heard from April where the younger spouse shares super with the older spouse. What if we went the other way? In this example we've got Hannah, who's 10 years older. Hannah will hit her pension age first. Now, when she does that, and as the current rules stand, anything she has in superannuation is fully assessable for the Age Pension. Now, anything that the younger spouse, in this case, Joe, has in superannuation in an accumulation phase, is not assessable by Centrelink.
This is where you sometimes see strategies where the older partner might move some of their super into the younger spouse's name and into their account. So, let's say Joe ends up with $1 million in super when Hannah eventually applies for the Age Pension. If it's in the Accumulation phase, that $1million sitting in Joe's super account is not counted under the current rules. It could maximise Hannah's entitlements. So, that is a common strategy we see. Hannah could maximise Age Pension entitlements until Joe turns his super into an income stream where it would be counted or if he reaches his Age Pension age. So, it's just another key strategy going the other way.
I'll throw it back to you now, April. So, there's a thing called the transfer balance cap. Can you tell us where that can be a strategy for couples?
April: Let's say, for example, Hannah has $2.5 million in superannuation. There’s such a thing as a transfer balance cap. That means the amount you can transfer over to an income stream. For example, they're sitting in an account where no taxes are paid on investment earnings. Hannah might want to put the total $1.9 million into this income account, but for the rest of that $600,000, she may want to move that down to Joe's account or as much as she can based on the limits and eligibility. So, she wants to shift that down so that when Joe comes to the age when he can move his funds to an income account, all of their funds will sit in an environment where there are no taxes paid on investment earnings. Always double-check. Do your homework. That transfer balance cap, and eligibility may have changed for the year you're listening. So, please bear that in mind.
Another one we want to go through today, Kane, is the carry-forward rule. So, what happens if my balance is over $500,000?
Kane: Yes. Thanks, April. There is a carry-forward rule regarding your before-tax or concessional contributions. That means an annual limit for how much you can put into your superannuation, before tax, every year. Now, that does change year to year, so please ensure you check the annual limit for the year you're in when you're listening to this episode.
Now, in previous years, though, if I haven't utilised that total cap, so if I haven't put every dollar in, I could, in future years, under this carry-forward rule, I’d have the ability to make up that difference that I didn't maximise in previous years. Now, I can only do that, though, if my superannuation is under $500,000, as the rules stand. So, that's where sometimes couples will want to move their super between each other's accounts because what if, in this example, Hannah's super is getting close to that $500,000 mark? She wants to take advantage of this carry-forward rule. She might move some of her super into Joe's account to keep her balance under that 500 grand, enabling her to utilise that carry-forward rule. Again, this is something to keep in mind. Check the eligibility and rules when you're looking at something like that.
April, there is another very common strategy. It's more for later in life when someone's got full access to their super, and I've heard it is called a re-contribution strategy. April, please talk to us about that.
April: Thank you. So, you were talking just then about the concessional contribution cap. The concessional contribution cap is much less than the non-concessional cap, or after-tax contributions. So, this is, for example, putting funds from your bank account into superannuation where you've already paid any applicable taxes. So, it's more generous about how much you can put into your superannuation. Now Hannah might want to consider taking out a lump sum from her superannuation and putting it into Joe's account. Remember, I used that example: if she has $2.5 million, she might want to transfer a lot of money back into Joe's account.
Another thing we do here when discussing spouse strategies is, what happens if I break up with my partner? And we don't want to think about it; we want it all to be roses and our relationships to last forever. But if our relationship does break down, there is always the family law split process. So, if you are shifting your funds to your spouse's account, it becomes their money. But in a family law process, the lawyers will look at your superannuation and external assets. They will work out a fair system of who should receive what assets and what amount. So, I just wanted to touch on that and put that one out there. But, Kane, we're going to wrap up now. So, where can our viewers go for further help?
Kane: As I always say, a lot of information is available online. So, it's as simple as looking up ‘spouse contributions’ or ‘what is super splitting’. Have a look online, and you'll see a lot of great resources. As always, I caution you: What site are you looking at? Make sure it's a respected authority, like Moneysmart, or check your super fund's online resources. Lots of super funds have some great articles explaining these. So, it's a great place to find out.
As part of that, you definitely need to check your eligibility. I can't stress that enough with any of the strategies that we've talked about. They're certainly not for everyone. Check your eligibility; can I, do it? And then, also, does my super fund allow me to do it? Because there are different rules and things that super funds do. Some, for example, use their own form. Some will let you use an ATO form. So, there's some different stuff in play there. So, make sure you check with your super fund as well after checking your eligibility. Again, your fund's website may have a lot of that information there.
If you want to move super between accounts, just be aware that it’s a complex strategy. Seek professional advice if that's what you need to do. I can't stress that enough. Make sure you look at your eligibility, you know what benefits there may be. The big one that you heard us talk about, like Age Pension entitlements, are you even going to be eligible for them, so is that something you even need to look at? Again, a financial adviser would look at your eligibility, for example. They'll look at your situation. Is this going to be something that’s a benefit to you and your partner? Are these strategies right for you and your partner?
We've hit you with a bit today. So, again, online is your friend if this hurts your head.
That's all we have time for today. We've got some more Q&A questions coming up. If you have any super questions, you'd like us to answer in future episodes of this podcast, we'd love to answer them, so send those in. Just shoot through your ideas or questions to podcast@art.com.au.
Thank you for listening to Super Insider and we hope you can join us again next time.
This transcript has been edited for length and clarity.
