Australia: Split super to save up to A$20,000 tax

Partnered Australians, with proper and early financial planning, may be able to benefit from a large tax windfall at retirement under the planned superannuation contribution splitting regulations being introduced from 1 January 2006.

Instead of paying tax of 15% plus the Medicare Levy on superannuation balances above the tax free threshold (currently A$129,751), couples can now split 100% of their personal superannuation contributions and 85% of employer contributions made each financial year and direct them to the spouses’ accounts with a lesser balance.

Based on the current tax free threshold, that could equate to a tax savings for couples of up to A$21,000 and this tax saving increases each year as the tax free threshold gets indexed.

Navigator has welcomed the proposed regulations and intends to be the first platform to allow customers to use this new flexibility. From 1 January 2006, the day the regulations come into effect, Navigator customers can notify Navigator of their intention to request a contribution split to their spouse.

Traditionally, it is the male partner in a couple who is likely to have a higher superannuation balance than the female. This is due to women taking time out of the workforce for child rearing and higher participation rates in part time work.

The average superannuation balance for people aged between 55 and 64 years is A$94,700 for women and A$183,600 for men.[1]

Navigator’s group director, products, marketing and public affairs, Rob Donaghy, said: "Baby boomers in this age bracket are the ones seriously concentrating on their superannuation and they will quickly recognise the benefits of having two tax free thresholds between a couple and the ability to pick which account to direct contributions into.

“Financial Advisers will need to seriously consider contribution splitting for many of their clients – a financial plan without this feature may seriously compromise the retirement savings of many couples,” said Rob.

For example, a couple with one superannuation account of A$130,000 and the other of A$10,000 would benefit significantly by the person with the higher balance splitting any ongoing contributions. Rather than continue to build a higher balance, the larger account holder could transfer all future contributions to their spouse’s smaller account allowing their combined benefits to build up to a larger total tax free balance of almost A$260,000.

“If the female partner is, or has, taken time out of the work force to raise a family this needs to be recognised so that as a couple they can rectify this imbalance – families should not be paying a hefty financial cost later in life because the female partner took time away from the paid workforce to raise the couple’s family,” said Rob.

There is some concern that not all eligible couples who could benefit will take advantage of this new initiative because spouses with the higher balances may be put off by the high divorce rate and the possibility "it could happen to them".

“Even now, superannuation is considered an asset of the entire family estate in the event of a marital split. The favourable tax incentives make contribution splitting a very attractive proposition and I would strongly recommend couples see a financial adviser to ensure they take advantage of all the retirement strategies available to them,” said Rob.

Couples will also be able to access more significant tax benefits at the upper end of the superannuation system by having access to two Reasonable Benefit Limits (RBL) currently A$648,946 each. This means a couple could build up a super nest egg of more than A$1.2 million without paying excessive benefits tax, removing one of the key disincentives to salary sacrificing.

“There are literally hundreds of thousands of Australian couples who will be able to benefit from the new regulations when they are passed,” said Rob.

It will be available to anyone who has a spouse or de facto spouse under age 55, or under 65 and not retired (doesn’t include same sex couples), and is adding to their superannuation – be it through employer or personal contributions.

“Navigator quite clearly recognises the benefits of splitting contributions and will ensure members can make the most of this new legislation the minute it is available.

"However, this won’t be the case with all superannuation providers, as offering the strategy of splitting contributions will be voluntary for each super fund, so some couples may find their current fund will not provide a splitting facility,” said Rob.

“This is when superannuation choice may gather momentum as couples recognise the benefits of splitting contributions and begin to look for providers like Navigator that are offering the strategy,” he said.

While contribution splitting under the legislation will be available from the beginning of 2006, members who choose this option will actually confirm the split at the end of each financial year. The first period will be the first six months of the calendar year 2006, and thereafter it will be the full financial year.

Essentially, the contribution splitting arrangements allow couples with careful planning to maximise the amount of superannuation benefits available to them in retirement, either as a lump or tax effective income streams.

“Many couples are financially planning for retirement together – which means their investments are joint, their savings are joint – and now they can also equally share in their superannuation together. I’m sure a lot of couples will see the benefit in this strategy, especially the ones really concentrating on growing their retirement savings,” said Rob.

For further information on contribution splitting and other retirement and investment strategies please contact a financial adviser.

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For further information please contact:
Simon Morgan
Group General Manager Public Affairs
Phone: (03) 9829 8892
Mobile: 0407 966 632

Notes to editors:

• Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners is the Australian funds management arm of Aviva plc. Through these companies we provide products and services in the areas of wealth creation and wealth protection for more than 300,000 customers throughout Australia.
• Globally, Aviva Australia is part of Aviva plc, the world's sixth largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc.
• Aviva is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$78.6 billion, and more than A$645 billion of assets under management (as at 7July 2005). The group has more than 60,000 employees and 30 million customers worldwide.
• The information in this document reflects Navigator Australia Limited's ('Navigator') ABN 45 006 302 987 understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person and it is not a substitute for professional advice. A PDS is available from NULIS or your financial adviser. Applications to invest in investment product(s) through the investor directed portfolio service ("IDPS"), operated by Navigator, must be made by completing the application form attached to the applicable IDPS Guide Offer Document and Investment Allocation Authority. Before making an investment decision on the basis of the information above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the information is appropriate in the light of their particular investment needs, objectives and financial circumstances. Aviva does not receive any remuneration in relation to the provision of information available from this press release which is of a general nature only.