CFS highlights equalisation strategies for lower-balance clients

However, Ms Fox noted that there can be a number of reasons why these sorts of strategies can be beneficial for clients with lower balances as well.

Ms Fox noted that there are several super measures that are restricted by a member’s total super balance including carry forward concessional contributions and the non-concessional contribution cap and bring forward rules.

“So, equalisation strategies can assist with these,” she said.

For clients that haven’t maximised their concessional contributions since 1 July 2018, they may be able to carry forward some of those contributions to increase their basic concessional contributions cap of $27,500, she explained. Any unused concessional contributions can be carried forward for up to five years.

“However, in order to be eligible to use those accrued unused amounts, your total super balance needs to be less than $500,000 on the 30 June immediately before the financial year of the contribution,” she said.

“So, you can see that for a couple that really wants to maximise their concessional contributions, if they both have a total super balance of less than $500,000, then they can both use any accrued carry forward amounts.”

Ms Fox said equalisation strategies work most effectively where they’re implemented over the longer term, particularly where clients haven’t reached preservation age.

“If you have a spouse with even just $520,000 in super and the other spouse has $200,000 in super, it’s difficult to suddenly shift $20,000 to the spouses super all at once if you haven’t yet reached preservation age or some kind of condition of release where you’ve got access to the benefits,” she explained. “However, if you’ve been equalising over the longer term through spouse contribution splitting, you can avoid one spouse exceeding the cap in the first place.”

Spouse equalisation strategies, she said, can also help clients to make large non-concessional contributions.

“We need to remember that if our total super balance at the end of the previous financial year is equal to or greater than the general transfer balance cap, then our non-concessional contribution cap for the current year is nil,” she noted.

“The amount of NCCs we can make under the bring forward rules will also be impacted by total super balance. So, at the prior 30 June, if your total super balance is $1.48 million or greater, then your NCC cap and the bring forward rule is going to be limited. So utilising equalisation strategies on the way through could maximise the client’s ability to at large NCCs in the lead up to retirement, perhaps from the sale proceeds of non-super assets such as an investment property.”

Speaking in the same podcast, Colonial First State head of technical services Craig Day said there are a couple of traps to be aware of when implementing spouse contribution splitting.

“Remember that we’re always splitting an amount of contributions in the year after those contributions were made. So, if we had someone that was just over the $500,000 threshold on 30, June, we’d be splitting that in the next financial year,” he explained.

“That’s not going to allow us to reduce that total superannuation balance effective 30 June and suddenly allow us to use those bring forward contributions. So, this is something we need to do over the longer term.”

Mr Day also stressed that the amount the member splits to the spouse is still going to count against their cap.

“So, just because I’m splitting that off to my spouse, doesn’t mean that it doesn’t count against my concessional contribution cap. The good thing is that it won’t count towards my spouse’s contribution cap,” he said.

“It’s also important to remember that the receiving spouse must be under age 65 to receive the contribution split.”

Ms Fox said if the spouse is between preservation age and 65, it’s also important to ensure the receiving spouse hasn’t met a condition of relief.