Fortunately, there are a number of strategies that can be implemented to even up such imbalances to maximise a couple’s combined super.
One such strategy focuses on evening up superannuation balances between spouses and maximising their combined superannuation with a withdrawal and recontribution strategy.
The benefits of this strategy include:
A withdrawal and recontribution strategy has been bolstered from 1 July 2022, with the 2021 Federal budget announcements passing both houses of Parliament in early February:
Its best to run through an example as it can get a little complicated:
Take Scott (68) and Kathy (63), they have the following superannuation benefits:
|Benefits as of 30 June 2022||Tax free %||Benefit composition|
|Scott||$1,068,000||45%||Pension ($900,000 against TBC*)|
*TBC = Transfer Balance Cap. It is a lifetime limit (currently $1.7 Million) on the total amount of superannuation that individuals can transfer into retirement phase income streams, including most pensions and annuities.
Kathy is still working to maximise her retirement benefits. However, she has ceased an employment arrangement so has full access to her Unrestricted and Restricted Non-Preserved (URNP) benefits. Considering this, and the transfer balance cap of $1,700,000, Kathy will maximise the amount of benefits she can put into retirement phase upon her eventual retirement. A portion will remain in accumulation, paying tax on earnings at 15%.
Scott on the other hand, has already retired and has not maximised his transfer balance cap. He will have an indexed TBC of an amount between $1,600,000 and $1,700,000.
As of July 1, 2022, Scott no longer needs to satisfy the work test and now has access to the bring forward non-concessional contributions cap. Kathy and Scott should therefore consider withdrawing up to $330,000 from Kathy’s accumulation interest and re-contributing them into Scott’s superannuation account.
By implementing this strategy from July 1, 2022, Kathy is reducing her total superannuation balance by $330,000, thereby giving her the potential to also make non-concessional contributions, and Scott can commence a retirement phase income stream on the re-contributed amount within his TBC. The amount now attributed towards his TBC is $1,230,000.
Savings of future income tax will also be achieved once Kathy goes into the retirement phase as a greater amount of her benefits will be within her TBC.
Kathy is also converting a portion of her benefits ($330,000) that are currently 18% tax free into 100% tax free monies. This provides additional savings of approximately $46,000 in death benefits taxes upon the death of one spouse, when paid out through superannuation to beneficiaries (presuming Scott and Kathy have estate planning matters in place directing benefits to each other on their death).
Superannuation contribution rules are complex, but rest assured there are a number of different strategies that couples can use to help maximise their combined super, subject to their individual circumstances. Please contact Calibre if you would like to explore whether any of these strategies may be of benefit to you and your family.
If you have any questions/thoughts in relation to this article or would like more information, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
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