Q: I am over 60 and my wife is well under. I have over $3 million in my super and my wife has very little. I have put off employing a recontribution strategy to even the super balances, to avoid triggering super pension phase and mandatory withdrawals – but with looming new tax changes, I am rethinking. The downside is that I am required to make minimum drawdowns (normally 4% but currently 2%) but don’t see as major issue given I need the money to recontribute. Have I missed anything, or assuming proposed changes make it into law, strategy seems sound?
A: The proposed changes to super increase the tax on earnings for accounts which are in excess of $3 million. So, if you’ve got more than $3 million (in super), then again, you might need to think about that. But what this proposal has done has put an increased focus, or the focus back on what I think is a real need to consider equalising spouse super balances. This strategy around equalising spouse super balances became really relevant when the new transfer balance cap (TBC) rules came in (2017).
This was one was when once member’s super balance was well above $1.6 million (TBC as at 1 30 June 2017) and one member well below. The same thing needs to be thought about if the $3 million new cap applies. What’s the use of having someone well above it and one spouse well below it? So having as equal as possible member balances inside super for spouses is, of course, still important and probably even more important.
The way that we achieve that, we can’t just transfer money from one person’s account to another, balances that is. We can do, of course, contribution splitting, we can do other things, but we can’t just transfer money between spouse accounts. The way it’s often done is by starting a pension, taking pension payments, and then using those to pay back into the lower spouse’s account, i.e., a recontribution strategy for a spouse. It is still, of course, valid. You can certainly still do that.
The concern that I think I picked up from the reader, though, was they didn’t want to take out consistent amounts of money under the minimum pension requirements, that 4% or 2% each year. They didn’t want to do that. Just to touch on that point, it could be that if you’re eligible, you could take a lump sum instead. Take out a one-off lump sum payment, so it’s not in pension phase, so rather than pension payments.
Then the spouse could then put that money back in as a non-concessional or concessional, whatever they want back into their own fund. You’re getting the same result but not having to take a pension. I would just weigh this up. I’d ask you to crunch the numbers or get some advice around that. What’s the difference, really? If you’re in pension phase, there’s tax free earnings inside the fund. If you’re taking lump sums, the fund, of course, could still be in the accumulation phase. They’re still paying that 15% tax on earnings.
The question was, had you missed anything? Not really, other than the fact that you would get the same result with lump sum withdrawals rather than pension withdrawals. That’s a personal decision. You should seek personal advice around that and how it does affect you. But to answer that question, as I mentioned, this is another thing that you could consider.
You could look at some resources on our website around accessing super, what are the conditions of release and pensions versus lump sums.
Leave a comment
You must be a SuperGuide member and logged in to add a comment or question.