BEING single is not a bonus when it comes to making the most of the superannuation reforms announced in last week’s Federal Budget.
But having a spouse can be great for your financial health, experts say, because it enables you to double up on many of the super incentives and squeeze under tougher new contribution caps more easily.
Budget changes included dramatic cuts to how much money people can put into their super each year, and a $1.6 million limit on the amount each retiree can transfer into a tax-free private pension.
Capping pre-tax contributions at $25,000 from July 2017, down from current caps of $30,000 for under-50s and $35,000 for over-50s is the biggest government revenue raiser of all the super reforms and has created the most controversy. However, Baillieu Holst financial adviser Helen Dundon says super still offers excellent tax concessions.
“Super is still a good savings vehicle even though it keeps getting played around with by the government,” she says.
Couples who plan together can inject twice as much into their combined super each year, and split their contributions to help one partner catch-up.
“I’ve always been a big fan of splitting super, because you never know what’s coming, but even more so now,” Dundon says.
She says the lower caps mean couples should aim to put more away earlier in life if they want to build a bigger nest egg, although under-40s are often better off paying down a mortgage if they have one.
“The more you do at a younger age, the better you are going to be because of the time affect.”
Another welcome Budget reform relaxes the rules around claiming a $540 tax offset by making a super contribution for a low-income spouse. Previously it was only available for spouses earning less than $10,800, but the Budget lifts that threshold to $37,000.
Dundon says this change brings the spouse contribution rules “into the current century”.
KeyInvest managing director Ian Campbell warns that making a spouse contribution will count towards your own contribution cap.
He says the penalties for exceeding the cap are having to pay tax at your marginal rate rather than the 15 per cent tax rate for super, plus an interest penalty.
Campbell says the super changes hit people on higher incomes the hardest, which may improve the attractiveness of other asset types such as investment bonds, particularly when business tax rates start dropping.
“Investment bonds and insurance bonds are tax paid at the corporate tax rate,” he says. “With a lower company tax rate, that will go through to investment bonds over time.”
Originally published as Why two eggs are better than one
