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Hewison Private Wealth - Insights
Hewison Insights

Contribution splitting to ‘balance the ledger’

Pierce Hanlen
Wealth Adviser
15 Jun 2022

One of the major issues identified in superannuation is the gender gap, where on average men retire with much higher balances than women. While certainly not exclusively, one reason this occurs is due to many choosing to start a family. Historically it has been more common for the mother to leave the workforce for a potentially longer period of time, and throughout that time it is likely that they do not continue to receive superannuation guarantee contributions.  

The impact of this is thousands of dollars that are not invested now to benefit from compound earnings of decades. The government stepped in a while back to help remedy this situation by introducing contribution splitting. This rule means that you can ‘split’ 85% of your concessional contributions (employer contributions, salary sacrifice contributions etc.) to your spouse’s super account.

See here for more information on concessional contributions.

This has been an excellent measure that means taking time out of the workforce doesn’t necessarily mean your retirement savings need to screech to a halt.  

Some people may not be too phased by this difference, but with the significant rule changes made to super in 2017, maybe you should consider contribution splitting to safeguard your retirement position in the future. 

One of the major changes to super in 2017 was the introduction of the Transfer Balance Cap (TBC). I won’t be going into the TBC in detail, however a practical impact of this measure is that once your individual super balance reaches the TBC (currently $1.7m), you can no longer make additional non-concessional contributions (after-tax contributions) to super. This could have major tax implications in the lead up to and throughout retirement. 

$1.7m might sound like an enormous number to you that seems unreachable, but don’t underestimate the power of compound earnings and the impact of a sound contribution strategy over the years.

This coupled with the increasing superannuation guarantee (currently 10% of your salary, increasing to 12% in the coming years) means it will be a reality for many.  

So, ‘evening the ledger’ now with something as simple as contribution splitting could mean both members of a couple can continue to contribute large amounts to super later in life instead of just one member of the couple. This then flows on to potentially superior tax outcomes in retirement.  

It is important to identify if your super fund allows contribution splitting. More information on what needs to be submitted to the ATO can be found here. 


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