As the start of a new decade commences, now is the perfect time to review your financial goals and pave the way for your financial future. For women, this not only includes household budgets, saving for that next holiday and personal insurances, but it is also just as important to consider superannuation and future retirement wealth.
It is well known that women generally retire with a significantly smaller superannuation balance than men which is due to a number of reasons, including;
- Women taking time out of the workforce to look after young families and/or aging parents.
- Nearly half of all women working in the Australian workforce work on a part time basis1.
- The gender pay gap, with the average weekly ordinary earnings for women are 14% less than men1.
- The possibility of a lack of financial literacy on more complex investment structures.
According to the Association of Superannuation Funds of Australia (ASFA) Superannuation Statistics issued December 2019, women retire with an average of $157,050, compared to the average retirement wealth of males, of $270,710, a difference of 41%. If you are a member of a couple, there are a few additional ways that you can build your superannuation balance either from household income, or your spouse’s superannuation contributions.
Help your spouse increase their super – strategy 1
The spouse contribution splitting is a strategy commonly used between couples to help even superannuation balances. This is where one member of a couple splits their concessional contributions (e.g. employer, salary sacrifice or personal concessional contributions) by transferring the contributions from their super, to their spouse’s super.
The main rules around this strategy are:
- The receiving spouse must be under preservation age at the time of the split, or between preservation age and age 64 and confirm they do not satisfy the ‘retirement’ condition of release. Contribution splitting is not available to a spouse who is age 65 or over.
- Contribution splits need to be made no later than the financial year following the financial year the contributions were made.
The amount that can be transferred from one spouse to another is the lesser of 85% of the concessional contributions made or the concessional contribution cap in the relevant financial year. Sound complex? It is. Hopefully the following example helps illustrate the strategy and its benefits:
Naomi (33) and Luke (37) are married. Naomi is not employed as she currently stays at home to look after their young family. Naomi will not make any contributions to super during the 2019/2020 financial year because of this.
Luke, will maximise his contributions ($25,000) during the financial year. Therefore, Luke can split a maximum of 85% / $21,250 of the $25,000 he contributed to superannuation and have the funds transferred to Naomi’s superannuation account to assist with continuing to build her super balance while she has time out of the work force.
Help your spouse increase their super – strategy 2
Following the introduction of the carried-forward concessional contribution regime from 1 July 2019 any spouse contribution strategy (strategy 1) can be further enhanced allowing the split of a greater amount of your concessional contributions with your spouse. This strategy can be achieved where you have not maximised your concessional contribution cap in previous five financial years (year one starting from financial year 2018/2019). This can allow you to use your unused contributions in the current financial year and provides scope for a greater amount to be contributed to superannuation compared to what is generally allowable.
Naomi (33) and Luke (37) are married. Luke, will maximise his contributions ($25,000) during the 2019/2020 financial year. However, Luke only had concessional contributions of $18,500 during the 2018/2019 financial year.
Accordingly, Luke has the ability to make extra concessional contributions of $6,500 via the carry-forward provisions during 2019/2020 in addition to the normal $25,000 limit. This would allow Luke to split a maximum of 85% / $26,775 of the $31,500 and have the funds transferred to Naomi’s superannuation.
Help your spouse increase their super – strategy 3
Depending on your spouse’s assessable income for the current financial year, you may be able to claim a tax offset in your personal name of up to $540 where a contribution to your spouse’s superannuation account occurs.
If your spouse’s assessable income is less than $37,000, a contribution of $3,000 to their superannuation account will give you the maximum tax rebate of $540.
The level of tax rebate you receive is dependent on the contribution you make and reduces to nil as your spouse’s assessable income rises to $40,000.
Naomi (33) and Luke (37) are married. Naomi is not employed as she currently stays at home to look after their young family. Her assessable income for the 2019/2020 financial year will therefore be less than $37,000.
If the household budget allows, Luke can make a spouse contribution of $3,000 to Naomi’s complying superannuation fund and receive the maximum tax offset of $540.
Prior to implementing the above strategies, we encourage you to seek financial advice from a qualified financial planner to ensure you meet the contribution eligibility criteria.
1 – Australian Government Workplace Gender Equality Agency, ‘Gender workplace statistics at a glance 2018-19’, https://www.wgea.gov.au/data/fact-sheets/gender-workplace-statistics-at-a-glance