This is a process where, upon you meeting a condition of release, a member withdraws money from their super fund and then re-contributes the funds back into their super fund as a personal non-concessional contribution (subject to restrictions with non-concessional caps). The aim is to increase the tax free portion of the member’s super fund benefit. With the introduction of a Transfer Balance Cap limiting how much can be held in a pension account, this might be a valuable strategy for transferring funds between members of a couple where one member exceeds or is close to exceeding their individual personal Transfer Balance Cap threshold (Please note: The general Transfer Balance Cap is currently set at $1.7 million for the 2022-23 financial year). The strategy can be used to transfer funds from the member of a couple close to their transfer balance cap to the other member of the couple with a low super balance, thereby maximising the combined amount of funds able to be held in the pension phase by the couple.
This strategy of increasing the tax-free proportion of a super balance also provides the key benefits of providing a more tax effective income stream (if taken prior to age 60) as well as decreasing the tax paid on your death if your benefits are paid to a non-dependant for tax purposes.
This strategy must be planned carefully as: