“I am 52 years old and have $1 million in Super but my husband only has $700k. Is it possible to transfer some of my Super over to him? Or is there a better way to increase his Super?”
- Question from Kathy in Malanda, QLD
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Great question. Like most questions in financial planning, there’s a “why” and an “it depends”...
First off, “Why”, there are a few reasons to split super if you will, but to be honest, none of them have anything to do with perfectly marrying up the balances, in fact…. The most common one is quite the opposite. Divorce. Family law settlements can mandate the transfer of super without tax consequences, however, let's ignore that one. I’ll just preface this with the fact that all of the information below can be found in more detail on our website here.
Probably the most important question, is “How”? How has this difference arisen? Now see below – it’s not a tragedy or problem by any stretch of the imagination. But it’s important to assess how this came to be.
There are plenty of simple, common answers. For example, do if you earn more money? Has your husband has neglected super contributions? Has if your husband has opted to build up assets outside of super (e.g. a business or others)? Or, are you simply in a much better-performing investment mix and product?
That’s probably the most important question – how. Because if the answer is something like.. a small business or assets outside of super, then the answers are radically different to say, you earning more money.
A really, really, common one, could be you being in a far superior product or investment mix. E.g. have you been getting great returns in a Growth or High Growth product, whilst your husband has languished in some crappy defensive option. I’m sure you can deduce the answer there.
Also “why”. Why even care? Well, $1 million vs $700,000 isn’t problematic. Sure, you have a higher balance, by a fairly decent margin, but it is not problematic. My very first point would be, don’t stress too much, if you’re both married, there really shouldn’t be any major issues, secondly, $700,000 is a decent balance, we’re not talking wildly different balances. Even if your age gap (if there is one) really stretches the differences in time between the two accounts moving to pension, I’d hope your husband’s balance would “tide” you both over.
But in essence, a difference like that isn’t a problem. That being said, what are the ways to do it, and what are some of the advantages?
There are some numbers that are important, one is $1.7 million. That’s the amount you can have earning a tax-free income stream (in legalese it’s called the Transfer Balance Cap). So, ideally, you don’t want one member of a couple to be dramatically over that amount, whilst the other is dramatically under… Again, neither of you are necessarily encroaching on that, so let's not stress too much.
This has a few factors, partially about contributions getting money into super. But also partially, who is older? Sometimes, you would want the younger member of the couple to have the higher balance, they will likely live later, ergo, they might need their super balance. However, if the older reaches retirement (preservation age/condition of release in jargon) then, you need enough to drawdown until both pensions are up and running.
Another important age aspect is again, the $1.7 million. So, for example, if you’re 10 years away from retirement versus 5 years, it might pay to give more thought, as you’re going to be more likely to hit that magic $1.7 million of tax-free (which itself will go up – that number is indexed).
Speaking of drawdowns, well, that’s the number one way that a super balance becomes depleted. So a good way to “equalise” the balances, is to, draw more heavily on the larger balance than the smaller balance. However, this assumes you need to draw extra. All pensions have a “minimum” withdrawal, for many, e.g. larger balances, this might be sufficient enough, however for others, it might not. So typically, if you need extra, it makes sense to take the increased drawings off the bigger pension.
As long as you’re both married (or de facto for that matter), then you can rest easy knowing that if for any reason the worst were to happen, both of your super accounts can be left to each other with minimum tax and if in pension, minimum disruption.
Withdrawal & re-contribution
There is a common strategy, which is known as a “withdrawal & re-contribution”. Now, this is for estate planning purposes. A by-product can be equalising balances. But again, the primary focus of this strategy is to reduce potential tax for estate beneficiaries that are not spouses or de facto partners (e.g. adult children / other). There are two prerequisites for this strategy and they both hinge on age. Firstly, one must be able to access their super without restriction or tax e.g. over 60 and retired or over 65. Secondly, they must be able to re-contribute monies to super as a “Non-concessional Contribution” aka after-tax contribution. Again, put simply you’ve got to be under 67. Now, again, this is to negate estate taxes, which, typically don’t apply to a husband and a wife, but rather, adult children. There are also more considerations, most importantly, what kind of assets you hold outside of superannuation. Contributions, especially non-concessional are a precious, finite resource. The last thing you want to do is waste them on a notional rebalancing which isn’t in itself an issue.
For a couple where one partner is below Age Pension age, the younger partner's super won't be considered by Centrelink in their means-testing. This only applies if it is not in the pension phase (potentially desirable over age 60). Secondly, I can’t say for certain, but based on your balances, I suspect you will not receive any age pension benefit. So let’s discount this.
To state the obvious, if you were planning on making personal contributions or non-concessional contributions, it might make sense to consider which account they are best directed to, however, there are greater considerations than simply higher balance. E.g. how much you hold outside of super, age differences, future assets (e.g. potential inheritances), tax consequences etc.
So, as annoying as it is, “it depends”. There is no silver bullet, there are many avenues (again, the best from a tax perspective is divorce – probably not the most cost-effective or enjoyable though), however, they all have their own requirements and most important benefits. Also, the most important is “how”, how did this come to be? Finally, arguably even more important, is that the difference is not one worth stressing about as it does not constitute an issue on face value (the meaning behind it might – e.g., a dreadful super fund).
My advice would be, the first round is on you,
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