Superannuation splitting advice to help boost couples’ wealth

Rule changes in superannuation have made contribution splitting more attractive for couples. Here’s what you need to know.

The clock is ticking for couples to make the most of a powerful superannuation strategy that can save tax, increase age pension ­access, and potentially get their hands on a bigger nest egg sooner.

Superannuation splitting rules allow a spouse to transfer to their partner’s super up to 85 per cent of a previous financial year’s employer and other tax-deductible contributions.

Financial advice specialists say this can help in several situations. It could help defend against Labor’s plan to tax unrealised gains in super funds with balances above $3m, and also prolong the ability for people to make extra tax-deductible catch-up contributions to their super by keeping their balance below $500,000.

UniSuper advice manager Derek Gascoigne said people should first check whether their fund offered contribution splitting, as some did not, while others might charge a fee.

“Not all contributions can be split,” Mr Gascoigne said.

Splitting super contributions with a spouse can be a valuable strategy. Picture: iStock

“For example, you can’t split after-tax contributions, or contributions to a defined benefit fund.”

A worker earning an average $100,000 wage, with $25,000 going into their super from their employer contributions plus their own voluntary tax-deductible concessional contributions, can transfer up to $21,250 of that money into their spouse’s super fund each year.

“Generally, you can only elect to split eligible contributions made during a financial year once that financial year has ended and within the next 12 months,” Mr Gascoigne said.

“For example, if you wanted to split contributions made in the 2023-24 financial year, you would need to complete the application to split the contributions before June 30, 2025.

“You can use spouse contribution splitting to try to even up super balances. With the transfer balance cap placing a limit on the amount of super you can move into a tax-free retirement income stream, splitting contributions from a spouse with a higher balance can help both parties keep their balances under the cap.”

Wealth giant MLC says splitting’s other benefits can include funding a spouse’s insurance premiums, protecting against legislative risks including Labor’s proposed new tax, increasing Centrelink entitlements, and allowing people to make catch-up super contributions for longer.

Catch-up contributions let people carry forward unused portions of their concessional contributions cap – currently $30,000 annually – to potentially secure a bigger tax deduction in a later year. The rules only allow this for people with super balances below $500,000, so it is worthwhile trying to keep both partners’ super below $500,000 for as long as possible.

Findex’s head of advice teams – wealth, Jonathan Scholes, said super splitting could help couples receive Centrelink benefits sooner, or boost age pension payments.

“In some instances where a spouse may be older than the other one, the ability to access superannuation may come earlier,” Mr Scholes said.

“It could serve to allow access to capital to repay debt or simply to fund living needs.”

The rules around super splitting are complex, so advice is worthwhile. Picture: iStock

In these situations, a younger spouse could effectively transfer their contributions out of superannuation years before they ­retire.

In cases where maximising age pension is important, an older spouse can transfer contributions to the younger spouse, whose super balance won’t be assessed by Centrelink until they retire.

Given the long-term impact of splitting strategies, and that they only apply to contributions and not balances, people should consider them years before retirement.

“My strong suggestion would be to seek financial advice,” Mr Scholes said. “Super splitting is a viable strategy that is often overlooked by many people, and is particularly become more important given the changes to the amount you can have inside superannuation.”

Superannuation splitting ­applies to both married and de facto spouses and, while there is no age limit for the splitting spouse, the receiving partner must be under age 65, or between 60 and 65 and not retired.