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Can Sharing Superannuation with Your Partner Secure Your Future Together?

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Over the past few years, we’ve all become familiar with the term Gender Pay Gap.

The Gender Pay Gap is the difference between the average wage of a man compared to the average wage of a woman. The gap has been closing slowly but unfortunately it still exists in every single occupation, even those that are dominated by women. What’s scary is that experts predict the Gender Pay Gap won’t close for another 26 years.

And whilst the Gender Pay Gap is talked about now quite openly, and most of us are at least aware of its existence, what isn’t talked about is an unfortunate by-product of these lower wages – the Gender Super Gap.

Compulsory superannuation paid by our employers, as we know, is based on the wages that we earn. So, if the wages of women on average are lower than the average wages of men, then it stands to reason that the superannuation paid to women will also be lower than the superannuation paid to men.

In fact, the Gender Super Gap is around 30% according to research by Industry Super Funds, which is greater than the Gender Pay Gap of approximately 21%.

According to the Australian Bureau of Statistics, over the past decade, women’s median superannuation balance (at or approaching preservation age) has increased at a faster rate than men. This is great progress, but a significant gap still remains.

Currently, on average, us women retire with $67,000 less in superannuation than men according to that same report by Industry Super Funds.

Millions of hard-working women are falling far behind in their retirement savings due to the persistent pay gap.

A study by Ipsos, a leading social research company, reveals that women in their late 30s and 40s are particularly concerned about not having enough savings to support their retirement.

If we don’t confront this issue directly, the Gender Super Gap is projected to persist until at least 2061 and beyond.

Although other factors contribute to this super inequality, it is the Gender Pay Gap at the heart of the issue.

Other factors include:

  • Women are more likely to have fragmented working careers or periods of working part time due to family caring of children or elderly parents.
  • Career breaks early in women’s lives means less contributions to super which can have a greater impact because it limits the powerful effect of compounding interest.
  • Fewer career opportunities with less women in senior executive positions where wages paid are higher.
  • Longer life expectancy than men meaning that women actually need more money in retirement savings as it needs to last longer.
  • Lack of financial literacy which could lead to poor decisions such as investing too conservatively or not taking advantage of tax breaks that are available.

But knowing why this happens doesn’t help you lessen the impact on your own superannuation or give you strategies to help grow your superannuation balance.

If you and your partner have very different superannuation balances, there are some strategies that can help to balance the imbalance.

You might be the one with the higher super balance, or perhaps you’d like to share this video with your partner if they have a higher balance in their superannuation fund.

But before we jump into the strategies, let’s address a question I get asked all the time:

Why.

Why would I want to move some of my super to my partner’s?

Well, apart from sharing is caring, building your spouse’s superannuation balance is a great way to increase the retirement savings nest egg that you will both benefit from in your later years.

If your partner has a low income, contributing to their super can give you a tax deduction, and who doesn’t love a tax deduction right?

Moving some of your super to theirs may also mean that you can contribute even more to your own and grab some great tax deductions for yourself.

You may also get a higher rate of Age Pension when the time comes.

So, let’s have a look at these points in more detail before we dive into some strategies that you or your partner might benefit from:

Flexibility in Retirement

Make the most of your retirement by understanding the rules of your superannuation fund. When you start receiving a pension from your superannuation fund, there are guidelines for the minimum and maximum amount you can take each year. The minimum is 4% of your balance, while the maximum is 10%. By having two funds of similar size, you’ll have more freedom to choose how much you receive in pension payments annually.

Making the most of your super contributions

If your total super balance is under $500,000 on June 30th of the previous financial year, you can carry forward any unused concessional contributions. But what if your balance is getting close to the limit? Don’t worry. You can transfer funds to your partner’s account with a lower balance through contribution splitting. By doing so, you can keep the option open for longer and retain this opportunity to continue to boost your own superannuation and save tax. That’s what is called a win-win.

The planned additional tax on earnings of super balances above $3 million is another incentive to equalise balances if either partner expects to accumulate a balance higher than the threshold. If you can both remain below the cap, the new tax will not apply. 

Boosting Your Age Pension: Maximise Benefits for Both Partners

Did you know that when one partner is older than the other, you can increase your Age Pension entitlements by retaining super in the account of the younger spouse? That’s right. This strategy allows you to make the most of your Age Pension while the younger spouse is below the Age Pension age which is currently 67.

Here’s how it works: by splitting contributions and or cashing benefits from the older spouse’s account to contribute to their younger partner’s super, you can reduce the amount considered in Centrelink’s income and asset tests.

That’s because superannuation balances for individuals under the pension age are not assessed. By having a lower amount assessed in means tests, the older partner may be eligible for a higher rate of Age Pension or qualify for a pension that they wouldn’t otherwise receive.

Now let’s look at what strategies you can put in place to help your partner build their superannuation nest egg or what strategies you could ask your partner to think about to help boost yours:

Spouse Contribution

A spouse contribution is my first strategy and as a bonus there is a tax offset on offer to help save on tax. This is one of the easiest ways to boost the super balance of a low-income spouse by making this non concessional contribution straight into your spouse’s superannuation account from your after-tax income.

The bonus on top of boosting your spouse’s low superannuation balance is that you get to claim a tax offset of up to $540 in your own personal income tax return (as long as you meet eligibility criteria of course).

What is a tax offset? Well, this is an amount that will reduce the amount of tax you pay.

So, who is eligible to receive a spouse contribution? To make a spouse contribution, your spouse must:

  • Not have exceeded their annual non-concessional contributions cap in the financial year you make the contribution into their account.
  • Have a Total Super Balance of less than $1.9 million on 30 June in the financial year before the contribution is made.
  • Be under age 75. Once your spouse turns 75, you can no longer make contributions on their behalf.

To be eligible to a tax offset you need to meet all the qualifying criteria:

  • Your spouse’s assessable income, which is different to taxable income, must be under $40,000 and to receive the full tax offset it needs to be under $37,000.
  • Your contribution must not be tax deductible to you.
  • Your contribution must have been made into a complying super fund.
  • You and your spouse must both be Australian residents when the contributions were made.
  • You and your spouse must be living together on a permanent basis.

 

Whilst there is no limit to the amount that you contribute to your spouse’s superannuation fund (other than as I said earlier, it must not exceed their annual non concessional contribution cap) only $3,000 is eligible to receive a tax offset.

If you contribute less than $3,000 you would be entitled to an offset of 18% of the amount contributed.

Superannuation Contribution Splitting

Contribution splitting is my second strategy to boosting the superannuation balance of your spouse. But more than just equalising your superannuation, contribution splitting can be a great strategy to lower the superannuation balance of someone who is able to access Age Pension, which may increase the rate of pension paid.

So don’t discount this strategy even if your super balances are similar.

Contribution splitting allows you to split certain concessional (before tax) contributions with your spouse.

Contribution splitting involves transferring up to 85% of your concessional contributions – such as employer Super Guarantee payments, salary sacrifice or personal deductible contributions received by your fund during the year – to your spouse’s super account.

The reason you can only split 85% of the contributions received is because 15% contributions tax would have already been deducted and paid to the ATO. This can be particularly beneficial for higher-income earners and pre-retirement couples where one spouse’s super account balance is expected to exceed the transfer balance cap. 

Contribution splitting does not reduce the amount counted towards your concessional contributions cap. Your super fund will still report all the super contributions made into your account during the financial year, which will include those contribution you split with your spouse.

The split contribution, however, does not form part of the receiving spouses’ annual concessional contributions cap.

It is also important to remember that the split contribution remain preserved until the receiving spouse reaches preservation age.

If you want to split your superannuation with your spouse, the receiving spouse must be either:

  • less than their preservation age; or
  • aged between their preservation age and 65 years, and not retired.

A spouse is a person of any gender you are legally married to or living in a de facto relationship with.

In addition, you must both be Australian residents when the contribution is made and must not be living separately on a permanent basis.

There are certain contributions that you are unable to split. We have a list of those over on our website if you need to check.

It is important to check that your super fund allows contribution splitting before you do anything, as not all funds allow it.

Withdrawal and Recontribution

My third and final strategy is a withdrawal from your superannuation fund (if you have full access) and recontributing this money into your spouse’s superannuation fund.

You have full access to your superannuation once you:

  • reach the age of 65, regardless of whether you are still working or not,
  • have retired and have reached your preservation age,
  • have ceased working for an employer after the age of 60, or
  • have become permanently incapacitated.

The amount recontributed to the receiving spouse will still need to meet the usual limits on contributions.

This is also a great strategy to change taxed contributions into untaxed contributions, so that when you pass away, your non-financial beneficiaries will not have to pay tax on the inherited superannuation they receive from you. A type of death tax that everyone should know about.

But Jen, what if we get divorced? is also something that I am asked about quite often. And of course, that unfortunately is something that happens to far too many of us.

But with superannuation being a divisible asset in divorce it really doesn’t matter whether it is in yours or theirs.

I hope that this has helped you or someone you love to build a future beyond the years that we work.

If you are ready to know more or if any of these strategies are something you would like to know more about why not join Super Savvy Woman? My course to help you take control of your superannuation and build a future where retirement is what you dreamed it would be.

You can find out more over on jenrichardson.co or reach out to me at hello@jenrichardson.co