To split super contributions, or not to split super contributions...

Members of a couple are able to transfer after-tax concessional contributions between each other.

In cases where a significant age difference exists, the conventional wisdom has been to split contributions from the younger member of a couple to the older. The rationale is that access to the contributions transferred and the earnings on those funds occurs earlier for the older member of a couple. Also, the funds can be switched to pension mode earlier, resulting in the tax rate on fund earnings dropping from 15% to zero. The tax savings can be considerable.

However, now that the Government has imposed a $1.6 million cap on funds in pension mode, some couples should re-evaluate their contribution transfer strategy. For example, if the younger member of a couple has been transferring contributions to his older spouse and the older spouse now has a balance close to $1.6 million, while the younger person has a balance of, say, $500,000, it might be time to cease transferring contributions in this way. In fact, it might be time to reverse the direction and instead transfer contributions from the older person to the younger person in order to start to equalise the balances. The aim would be to make sure both members of the couple get to $1.6 million by retirement age, or at least to avoid having one balance well above $1.6 million while ther other is well under $1.6 million.

Of course, no two situations are identical and there may be a whole range of other factors to take into account when deciding on trasferring contributions. The change to the rules have just made it more complicated and it is recommended that professional advice is sought.