Q&A: What are the benefits of spouse super equalisation strategies?

Q1: Nikki asks, I would like to understand what the benefit is for my husband to withdraw funds when he turns 60, and then I reinvest the funds back in my name.

Q2: Geoff asks, I have a super balance that’s very close to the $1.7 million cap. I wanted to know if I should transfer an amount to my wife’s super, so I stay under the cap.

A: This is another issue which has become very topical around these spouse equalisation strategies. There are a couple of admin issues or a couple of issues that need to be dealt with first.

It probably relates to Nicky’s question around, my husband’s turned 60, so pulling out money from his super and putting it back in for her. Keep in mind that turning 60 does not automatically allow you to access your super. It doesn’t give you full access. Turning 60, attaining preservation Age, which is essentially from 1 July this year is age 60. All that does, attaining preservation age, is it allows you to start a transition to retirement pension. Age 60 is more relevant for tax payments made. Payments received by a member after age 60 are usually tax-free. In order to access a lump sum from your husband’s account, he needs to first meet a condition of release. Turning age 60 is not on its own a condition of release. The main conditions of release I’ve included for you on the slide here. Turning 65 means all your money becomes unrestricted and non-reserved, and then you can do what you want. You could pull it all out as a lump sum, you could start pensions.

The choice is yours. Age 60 becomes relevant only for retirement purposes. If you retire under age 60 or if you retire after age 60, that’s where age 60 is relevant for accessing money.  From 1 July 2024, preservation age becomes age 60. But that’s only allowing up to 10% of benefits to be paid out by way of a transition to retirement pension. I just want to get that clear, first of all, that turning 60 doesn’t allow full access.

But look, assuming that the eligibility rules are met, why do this? Why would you look at pulling money out from a spouse and recontributing it back in for the other spouse? Whole raft of benefits. One that you could access superannuation earlier. If I take money, I’m younger, I start a TTR, allows me 10%, I could pull it out and I could contribute it in for my wife who can access it as a lump sum later. That could work.

It could be to maximise age pension. For instance, if I’m age pension age or about to be, and my wife’s not, I could take some money or split some money from my account to my wife. She’s younger and she’s below age pension age. It could allow me to access more age pension benefits.

It could also be to ensure that we both stay below that $1.9 million transfer balance cap so that we don’t need to hold any money accumulation phase. It wouldn’t make sense for one spouse to be above it and one spouse to be below it. It might be better for both spouses to maximise the $1.9 million.

It could also reduce the new tax coming in from 1 July 2025 called Division 296, which applies an additional 15% tax relevant to earnings above that $3 million limit. If I’ve got $3.5 million in my super from 1 July 2025, I’ll have to pay an additional 15% tax on the earnings relevant to that $500,000 above the $3 million. Why do that? When I could have both spouses below $3 million by doing a spouse splitting strategy or a recontribution strategy. They’re the whole raft of reasons as to why you might consider doing in that. What are the benefits? I hope that’s explained to you what those benefits are.

Geoff, in relation to your questions, I can’t tell you whether you should do it or not. That’s certainly not what these webinars are for. But there are benefits of spouse strategy, spouse equalisation or splitting strategies. We actually ran a webinar on this exact issue in April 2024.

If our subscribers can go and have a look at that April 2024 webinar, which covered these strategies around splitting or sharing balances with your spouse. Please just don’t go and transfer money in your fund between spouses. There are only certain ways to do it, and they’re explained in detail in that webinar. So jump online and have a look at that. It takes you through each of those what you need to do, and what the benefits are.