Introduction: Why Super Splitting Matters for Australian Families
When it comes to preparing for retirement, many Australians focus on growing their superannuation individually. But what if there was a way for couples to work together, sharing their super contributions to build a stronger financial future? This is where superannuation contribution splitting—commonly known as “super splitting”—comes into play.
Super splitting allows couples to transfer a portion of their super contributions from one partner to another, helping to balance retirement savings and maximise the benefits available to both. Contribution splitting is a little-known but powerful strategy for couples to balance super and boost family wealth. While not as widely discussed as other super strategies, super splitting can make a significant difference, particularly for households where one partner has a much higher super balance or where one has taken time out of the workforce.
This article will guide you through the essentials of super splitting: how it works, who can benefit, practical steps to get started, and common pitfalls to avoid. Whether you’re just starting to think about retirement or looking to optimise your family’s wealth, understanding super splitting could be the key to growing your wealth together.
What Is Super Splitting?
Super contribution splitting is a strategy that allows you to transfer up to 85% of your concessional (before-tax) super contributions from your account to your spouse’s super account each financial year. This includes employer super guarantee payments, salary sacrifice contributions, and personal deductible contributions. As the Australian Taxation Office (ATO) explains, “You can split up to 85% of your concessional (before-tax) contributions with your spouse each year.”
This strategy is especially relevant for couples where one partner has a much higher super balance, or where one partner has spent time out of the workforce—perhaps due to caring responsibilities or part-time work. By splitting contributions, couples can ensure both partners have meaningful super balances, improving financial security and flexibility in retirement.
To use super splitting, you and your spouse must meet certain criteria:
- Marital Status: You must be married or in a de facto relationship (including same-sex couples).
- Age: The receiving spouse must be under their preservation age, or between preservation age and 65 and not yet retired.
- Type of Contributions: Only concessional contributions made in the previous financial year can be split.
The process typically involves these steps:
- Check Your Fund’s Rules: Not all super funds offer contribution splitting, so check with your fund first. Some funds may charge a fee for this service.
- Make Concessional Contributions: These include employer contributions, salary sacrifice, and personal deductible contributions.
- Submit a Splitting Application: Complete your fund’s contribution splitting application form, usually after the end of the financial year in which the contributions were made.
- Timing: Applications must usually be made before the end of the following financial year, and before the receiving spouse turns 65 or retires.
- Receive Confirmation: Your fund will process the request and transfer the nominated amount to your spouse’s super account.
It’s important to note that splitting contributions:
- Does not affect your concessional cap: The split is made after the contribution has been counted towards your cap.
- Cannot be used for non-concessional (after-tax) contributions: Only before-tax contributions are eligible.
- Does not remove excess contributions: If you exceed your concessional cap, splitting does not fix this.
Benefits of Super Splitting: Real-Life Scenarios
Super splitting isn’t just a technical exercise—it can deliver real financial benefits for couples at all stages of life. Here are some of the main advantages, with examples and case studies drawn from leading Australian superannuation resources.
Balancing Super Between Partners
One of the most common reasons for super splitting is to even out super balances between partners. This is especially important where one partner has taken time out of the workforce, worked part-time, or earned less due to caring responsibilities.
Example:
Sarah and David live in St Ives, NSW. David has worked full-time for most of his career, while Sarah took several years off to raise their children and later returned to work part-time. By splitting some of David’s concessional contributions into Sarah’s super, they can help balance their retirement savings, giving Sarah greater financial independence and flexibility in retirement.
Earlier Access to Tax-Free Super
Super splitting can also allow couples to access tax-free super earlier. If one partner is older and closer to preservation age, splitting contributions into their account can mean earlier access to tax-free income streams.
Example:
Michael is 60, and his wife, Anna, is 54. By splitting contributions into Michael’s super account, the couple can access tax-free super income sooner, helping them transition to retirement more smoothly.
Maximising Centrelink Age Pension Entitlements
Super splitting can also help couples maximise their Centrelink Age Pension entitlements. By shifting super into the younger partner’s account (which is not counted in the assets test until they reach Age Pension age), couples may be able to increase their Age Pension payments.
Example:
Jenny is 67 and eligible for the Age Pension, while her husband, Tom, is 62. By splitting contributions into Tom’s super, the couple can reduce Jenny’s assessable assets, increasing her Age Pension payments until Tom reaches pension age.
Managing the $1.9 Million Total Super Balance Cap
The government’s Total Super Balance cap (currently $1.9 million) limits the amount you can transfer into a tax-free retirement income stream. By splitting contributions, couples can manage their balances to maximise their ability to make non-concessional contributions and transfer funds into tax-free retirement accounts.
Common Pitfalls to Avoid
- Missing the Deadline: If you miss the application window, you cannot split contributions for that year.
- Not Checking Fund Rules: Some funds do not allow splitting or may have additional requirements.
- Assuming All Contributions Are Eligible: Only concessional contributions can be split; non-concessional (after-tax) contributions are not eligible.
- Ignoring Tax Implications: While splitting does not affect your concessional cap, it is important to consider the overall tax impact, especially if you are close to the cap.
Conclusion: Making Super Splitting Work for You
Super splitting is a practical, underused strategy that can help Australian couples grow their wealth together. By understanding how it works, who can benefit, and the steps involved, you can take control of your family’s financial future and make the most of the super system.
With the right strategy, couples can make the most of their super and secure a stronger financial future together. Whether your goal is to balance super between partners, access tax-free income sooner, maximise Centrelink entitlements, or simply build greater financial resilience, super splitting offers a flexible and effective solution.