What is salary sacrifice into Super and how does it benefit you?

Is salary sacrifice into Super a good strategy for retirement saving?

Super is likely to be your second largest asset, after your home, which means there’s no better time to review your superannuation strategies than the end of financial year. 

What is salary sacrificing into Super?

Salary sacrificing is all about sacrificing some of your income now, to save for your retirement later. It means you’re not just relying on your employer’s regular Superannuation contribution of 10 per cent to save for your future.

How salary sacrificing into Super works

Salary sacrificing into super involves setting up an arrangement between you and your employer where you agree to contribute an additional amount into your super from your pre-tax income. As you’ll essentially be taking home less money, you should consider how much of your income you can afford to give up. Talk to our experienced team of advisors for more information on how to plan your Super future.

What are the benefits of salary sacrifice?

Salary sacrificing into Super offers several benefits.

• The amount you salary sacrifice into Super is generally taxed at 15 per cent, which for most people will be less than the tax you may pay on that income. This also means you’ll reduce your taxable income as you’ll essentially be taking home less money. You benefit because you pay less tax while boosting your retirement savings.

• The growth of your investments inside Super is also taxed at 15 per cent, which may be less than the tax you may pay on your investment earnings outside super.
• You’ll be saving additional money towards your retirement without having to do anything.
• The regular investments happen automatically via your employer’s payroll system, so you can relax knowing your money is working hard for your future.

Superannuation and compounding returns

As Super is a long-term investment, it’s able to take advantage of the power of compounding returns – basically you’re not only earning a return on your initial investment, but also on the returns that’s added to it over time.

Are there any restrictions with salary sacrificing into Super?

There are a couple of important things to keep in mind if you’re thinking about salary sacrificing into Super.

There’s a limit on the amount you can contribute into super every year. Salary sacrifice is considered a “concessional contribution”, along with your employer’s contributions and any personal contributions you want to claim a tax deduction for. In the 2021/22 financial year, the concessional contributions cap is $27,500, and the tax benefits associated with salary sacrifice is only available if you contribute less than this amount per year from pre-tax income.

Also keep in mind that all the money you contribute into Super is generally not accessible until you reach your preservation age and retire. So, although Super is a great way to invest for your retirement, make sure you don’t leave yourself short in the years before that. The team at Wealth Smart can help you create a plan of smart financial strategies for the short, medium and long term.

Is salary sacrifice right for me?

A salary sacrifice arrangement can be a useful option for increasing your long-term super savings. Possible benefits include tax savings and more money available for your retirement. As long as you’re careful not to exceed your concessional contributions cap and provided you can do without the funds in the meantime, salary sacrificing to Super could be a good option for you to make additional contributions to your retirement nest egg.

Contact the team at Wealth Smart to answer all your questions on salary sacrificing and assist you in planning for your future.

General advice warning. This advice does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. Should you require any help please contact Wealth Smart on 1800 765 100.