The gender gap in superannuation is well known, but unfortunately millions of Australians are unaware there are ways to help bridge it.
Men aged 60-64 have a median super balance of $154,453, compared to $122,848 for women, according to the Association of Superannuation Funds of Australia.
Another worrying statistic is that 23 per cent of women retire with no super compared to 13 per cent of men.
The superannuation balance between two partners is often out of whack because childbearing leaves one partner doing part-time work.
But research from comparison firm Finder has found there are ways to address that imbalance.
If your partner earns a low income or takes time out to care for the kids, topping up their super by supplementing [with] your own is a great way of securing the future of their retirement,” said Finder superannuation expert Alison Banney.
There are a number of ways to rebalance your super within the family.
“One is called the Spouse Contribution,” said Robert Goudie, principal of Consortium Private Wealth.
“If one partner is earning below $40,000 then the higher-earning spouse can make a contribution of up to $3000 to the superannuation of other.”
There are a couple of things to remember with this though.
The high income spouse cannot claim the $3000 as a concessional contribution, but in return for the payment, the government will give the contributor a rebate of up to $540, depending on the contribution size.
To be eligible for this arrangement the low-income spouse can not have reached their concessional cap for the year of $27,500.
They must also have a balance in their super fund below $1.7 million.
These conditions are unlikely to be a consideration for most low-income partners in a relationship, however.
Another way of balancing spousal super savings is what is known as ‘contribution splitting’.
“A spouse can share up to 85 per cent of a personal contribution with a partner,” said Stevie-Jade Turner, senior adviser with Tribeca Financial.
This is particularly useful for people who are in a position to make extra concessional contributions, either as a one-off or regular payment.
If done regularly the splitting can make a big difference to the partner with a lower super balance.
“Its a very effective way for people with a young family to ensure the super balance of the lower income partner is not ignored,” Ms Turner said.
For families in this situation a permanent rebalance of super payments can make sense.
“If one partner stops working you effectively split the income of the other partner 50-50 so why not do the same with super,” Ms Turner said.
Don’t forget that you can’t make the concessional contribution to your partner’s super until the beginning of the next financial year.
This is so the ATO can determine your financial position for the previous year.
This sharing strategy can also be used in other situations.
The partner receiving the contribution split cannot have reached 65 or their superannuation preservation age.
So an older partner who has retired can share their concessional contributions, which now can be made up to the age of 74, with a younger person.
“If someone is say 60-or-over and they have a 50-year-old spouse on a high income, that person can really benefit from the extra super contributions as a way of reducing income tax,” Mr Goudie said.
It can also be used as a strategy to boost Centrelink payments for a retired person. Once a person retires their super balance is part of the calculation for the pension assets test.
If someone with a lot of super who has hit 67 has retired and is on the pension and are they are still working a little or have money outside super they can move in as a concessional contribution.
They could then share that contribution with their partner.
This would reduce their super balance and increase their pension payment.
But that strategy is more effectively used with non-concessional contributions, which can be as high as $330,000 every three years.
A retired partner with a big super balance could withdraw a hefty lump sum from their account and give it to their younger working partner as a non-concessional (non-tax deductible) contribution.
That would boost their Centrelink pension payment while boosting the younger partner’s super balance, which both parties could spend in the future.
“It’s a common strategy and up to $440,000 could be transferred in a couple of months,” Mr Goudie said.
That could be achieved by rolling up three years of contributions, to a total of $330,000, and contributing that in June. Then, in July, a further $110,000 could be contributed for the following year, Mr Goudie said.While these strategies are very useful, Finder’s survey found that a disappointingly large number of people didn’t know about their existence.
That accounted for 64 per cent of people in the survey.
Low income partners can also benefit from a couple of government programs to boost their super.
The Low Income Tax Offset allows people earning up to $37,000 to receive up to $500 from the government to ensure they are not paying more tax on their super contributions (15 per cent) than on their income.
A government co-contribution benefit allows people earning up to $36,021 and making concessional contributions of up to $1000 to earn 50 cents on the dollar to top up their contribution to a cap of $500.
This measure is little used but is a handy one for low-income earners.
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