Until recently, the ability to split superannuation pots was a popular strategy for couples looking to reduce the amount of tax payable on their end benefits. But from 1 July 2007, the government’s Better Super changes mean that for the majority of people aged 60 or over, super paid as a lump sum or income stream is now tax free.
So is there any value left in splitting? For those individuals wanting to access their benefits before reaching age 60, the answer is still yes, according to Louise Biti, Asteron’s head of technical services. This is because the government allows individuals retiring before age 60 to withdraw $135,590 of any post 30 June 1983 contributions tax-free (in the 2006/07 tax year). If only one partner has significant pension savings, it is worth splitting so that both individuals can withdraw this tax-free amount.
According to Andrew Buchan, director of financial planning at HLB Mann Judd: “A good strategy is where there is a significant age difference between spouses, as splitting may allow a couple to accumulate more benefits in the older spouse’s super over time. This person would be the first to reach age 60 and take advantage of the tax free status.”
Biti adds: “Super splitting can be beneficial for couples who want to reduce the effective cost of insurance premiums held through super for a non-working spouse.” She also says that super could be shifted to a partner under pension age in order to increase the assets text exemption for social security payments.
Partners wanting to accumulate savings in their own name to gain control and flexibility may also decide to divide the pot of one spouse in two. And for the more cynical, super splitting might still be a popular strategy if they are concerned that a new government of a different political bent decides to reintroduce the tax on end benefits. By splitting, they can hedge their bets against future changes.
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Whether you can actually split your fund monies will depend on the super scheme you are a member of. Super splitting is a voluntary measure, so while the majority of funds have this option available, some do not allow contributions to be divided. Where it is available, both de facto as well as married couples can put it to use. However, it is not an option for those in same sex relationships.
Should you decide to share your super savings, it is generally wisest to do so at the conclusion of the financial year. Biti says that it is only possible to transfer up to 85% of concessional (ie, employer and personal deductible) contributions – sharing after-tax contributions or amounts rolled over to the current fund is not allowed.
Once a figure has been arrived at, the trustee of the superannuation scheme must be notified, and details provided of the account into which the split funds should be allocated. Buchan notes: “The member’s spouse must be aged less than their preservation age or not be permanently retired. If the member’s spouse has reached preservation age, and is under age 65, they must declare that they are not permanently retired at the time the split request is made.” It is not possible to split super to your spouse if they are aged 65 or more.
Finally, it is important to bear in mind that super splitting rules do not apply in cases of divorce or relationship breakdown. In these instances, the court may request in the property settlement that the superannuation funds of one individual be shared with their ex-spouse. However, this process is referred to as transferring super, and is governed by the Family Law Act.