What’s mine is yours, except for my super. Well, it doesn’t have to be this way.
When we are in our 20s and 30s when we think of super we don’t tend to think ‘interesting’, ‘fun’, or ‘sexy’. Its more like, ‘confusing’, ‘boring’ and ‘who cares’.
A finance nerd like me could talk about super all day long, it’s as enjoyable as a pleasant walk in the park on a crisp morning with a warm coffee in hand. But that is a story for another day. What I want to focus on, specifically, is another awesome reason why couples should be interested in their super.
Growing up in an all-girl family and being surrounded by so many incredible feminist women and men in my life the importance of ‘financial independence’ is something that has been drilled into me since I was little.
The 2017 Hilda survey found that Australian women retired with an average super balance of $230,907 and men retire with about twice this amount.
So, it goes without saying that accepting the status quo is not ok. The fact is that in many circumstances mums are the ones that chose to stay at home with their little ones and then there is the gender pay gap which means women in their 20s would need to work an additional 7 years in their life to achieve equal pay to our male counterparts… Unfortunately, I cannot fix that issue with one article. But being the strong women and incredible partners we are, we can start to discuss one of many steps we can consider to minimise the gap.
Two words. Super. Splitting.
“Whaaaaat?” You may ask… Well, keep reading cause sh*t is about to get real!
WHAT is super splitting.
Super splitting allows you to split your concessional (before-tax) contributions with your spouse. Common types of concessional contributions are your employer’s compulsory superannuation guarantee (SG) contributions and any salary sacrifice contributions you arrange.
This can be an awesome option in particular where you have no additional funds to contribute to super but want to equalise super balances between partners or assist with a non-working spouse’s super balance and costs.
FUN FACTS about super splitting:
- You can only split funds to a spouse
- There are age restrictions; The receiving spouse has to be under 55, or if between 55-64 meeting certain working requirements
- There are specific times frames in which you can complete the split; Splits are made of the previous year’s contributions, or circumstantially if you are rolling or cashing out of a super fund before the EOFY you can do a mid-year split
- There are limits on how much you can split; You can split a maximum of 85% of the total contributions received, this allows for the 15% that would have been removed for contribution tax
- Not all super funds have the ability to allow a super splitting arrangement
I’m going to give you the 411 on how Pursue Wealth has advised some of the couples we work with on this super fun (pun intended) strategy.
*Note: I am ONLY going to be focusing on the super splitting component of their strategies but trust me there was heaps of other cool things we did for these PW members.
CASE 1: COVERING INSURANCE PREMIUMS WHILST ON PARENTAL LEAVE
Hubby and Wife (30s) had just had their 2nd bundle of joy and she decided she wanted to take 12 months parental leave. He is a business consultant and great dad, she is a designer and incredible mum. Both have good incomes and similar super balances.
THE ISSUE: During her parental leave they were a one income household and didn’t have enough disposable income to continue to salary sacrifice and fund any insurance premiums that were deducted from her super. They did not want to lose momentum on her growing balance.
THE SOLUTION: Super splitting portion of Hubby’s annual contributions across into her super fund to cover a minimum of any premiums that were to be deducted whilst she was on maternity leave.
CASE 2: SUPER EQUALISATION
Hubby & Wife (30s). He is a corporate solicitor, she started her own boutique accounting firm.
THE ISSUE: We often see in the first few years of small business the owners do not to have adequate incomes to contribute funds into their super. Therefore, even though she was now 6 years into her business and had since started contributing into her super, her balance was still considerably lower than his.
Their concern was that they have both worked so hard and they didn’t feel she should carry the burden of having less funds in her super just because she started a business and had time off with kids.
THE SOLUTION: As they were now contributing into her super and had no other excess cashflow, we made a conscious recommendation to equalize their super over the next 3 years with a super splitting strategy. Moving a considerable portion of his funds into hers each year leaving enough for him to fund fees and premiums that would be deducted from his account.
In closing, there are a number of different reasons why you would consider super splitting and if it is appropriate for you. I have given you two different examples but both very real considerations and great solutions. Super is important and is going to be one of your largest assets, time to get serious about it and your financial independence!