An often overlooked but valuable means of growing overall retirement savings is to pass some of your superannuation to your spouse, i.e. spouse contribution splitting.
As a general rule, you can’t transfer your personal super to someone else, unless you withdraw the funds and give the money to another person or you nominate someone to receive your balance when you die.
Spouse splitting allows one member of a couple to transfer a portion of their superannuation contributions to the other as a means of increasing retirement savings.
Now while this may not seem overly exciting, let me show you how this might work for a pre-retirement couple – Jenny and John.
Jenny (age 53) works part-time as an administrator in a local medical practice and earns $50,000 p.a. and receives 9.5% in super per year. John (aged 60) works as a manager in a medium sized wholesaling business earning $120,000 p.a. salary sacrificing $15,000 per annum in addition to his 9.5% employer super contribution. Jenny has accumulated $120,000 in super savings, John $360,000. They hope to retire by the time John is 70 (or earlier if possible) but not sure how they will do this as they still have a home mortgage of $260,000, on which they pay $33,000 per annum, which they hope to have repaid in around 10 years’ time.
One option might be for Jenny to sacrifice more of her salary to super i.e. up to the yearly concessional limit of $25,000, and then pass this over to John on an after-tax basis.
Allowable contributions that can be split with a spouse are Concessional Contributions on an after-tax basis.
In this case, Jenny’s $25,000 pre-tax concessional contribution would be equal to $21,250 after-tax ($25,000 less 15% contribution tax).
Why should Jenny give these contributions to John?
Well, as John is over preservation age, he is eligible to access his super balance via a Transition to Retirement (TTR) income stream. This would allow John to withdraw up to 10% of his accumulated balance each year (on a tax-exempt basis), which they could then direct to their home mortgage as additional lump sum repayments. If they were to do this, their mortgage would be fully repaid in approximately 4 years* and they’d save around $37,000 in home loan interest.
Once the mortgage was repaid, Jenny and John could then turn their focus to accumulating more superannuation savings over the next 6 years. This would be in addition to the $33,000 per year they would not need to pay on their home mortgage.
Superannuation strategies can be complex. It’s important that you speak with an RSM Financial Services Australia representative before making a decision in relation to your retirement savings.
* Assumed interest rate 4.50% pa on $260,000, standard P&I repayments of $33,000 per annum, increased to $70,000 per annum. John’s TTR pension refreshed each financial year with accumulated spouse splitting contributions from Jenny of $21,250 and John’s combined contributions of $21,250. John’s yearly pension drawings are assumed to be $37,000 per annum – drawn as a single amount.
This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.
It contains general advice. As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.