We have $1m in savings but only $250k in super. Should we change that?

We are a mid-50s couple with one income of $250,000, a total of $250,000 in combined super, and $1 million in savings across bank accounts under the non-working partner’s name. We own our home and an investment property (both valued at ~$2 million each), but the investment property yields little after expenses. Given our risk appetite, is it beneficial to move more savings into super and/or sell the investment property to reallocate funds into a mix of bank accounts and super?

You are under-represented with regards to superannuation savings given the stage of life that you are at and your broader balance sheet.

If your super is looking a little skint, it would make sense to top it up before you retire.Credit: Simon Letch

Once over aged 60 and retired, superannuation pensions produce tax-free income up to the transfer balance cap (see question below). This is extraordinarily generous and tough to beat.

Until you reach retirement, tax on super is 15 per cent, which is attractive for the wage earner in your household, and likely reasonable for the non-wage-earner given investment earnings.

Assuming you’ve got another five to 10 years of working life remaining, consider boosting the proportion of your savings that’s in the superannuation environment. Keep in mind that you can choose the level of investment risk within your super fund. Whilst I wouldn’t advise it, it is possible to be 100 per cent cash in super if you were especially risk-averse.

There are caps that need to be factored in. Were the investment property sold and capital gains tax (CGT) triggered, there might be an opportunity to do catch-up contributions, which would both boost your superannuation savings and help offset some of the CGT liability. Some number crunching is required here though, because CGT attributable to the wage earner could be quite high.

You could also make after-tax contributions. The current limit is $120,000 per year. It could be that you each use your annual limit for the next several years to put the money that’s currently in the bank to better use, and then just before retirement time, add a final $360,000 each under the bring-forward provisions, perhaps funded by the sale of the investment property.

There are more strategy options here than I can canvas in this column, but the key point is that you should consider getting a greater proportion of your wealth into superannuation before you retire.

I commenced a superannuation pension in October last year using up the full $1.9 million cap. I’ve read that the cap will increase to $2 million in July. How do I make use of this extra $100,000 of headroom, given I can’t add to my pension?

Thank you for highlighting an easily misunderstood aspect of the transfer balance cap.

For those unaware, there is a limit on the amount of superannuation savings that you can transfer into a tax-free pension in retirement. This limit is known as the transfer balance cap, and at present it sits at $1.9 million per person. You are correct in saying that it is due to be indexed up to $2 million next financial year.

This indexation, however, will not enable you to get any more money into a superannuation pension. When you commenced your pension, you were assessed against the percentage of the cap that you used.

In your case, you utilised 100 per cent of the cap at the time you converted to pension. That being the case, future increases in the cap due to indexation have no relevance to you, as you have already used up the entirety of your entitlement.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [e-mail]

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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