Don’t be put off by the name. Salary sacrifice superannuation contributions can actually be a great way to bolster your retirement savings. You might find that a small sacrifice you make in your pay packet today will mean a more relaxed lifestyle tomorrow.
The benefits of salary sacrifice
Of course, any extra contributions you can afford to make to your superannuation account today will benefit your retirement savings in the future. And, because salary sacrifice contributions are made pre-tax, they can reduce your taxable income - so you will generally pay less tax while you save for your future.
There is also the potential for significant tax savings in the short, medium and long term.
How will salary sacrifice impact tax?
- Generally, in the short term your overall tax bill may be reduced. Salary sacrifice contributions are taxed at 15%. This is a potentially lower than the PAYG (income tax) rates you would otherwise pay.
- In the medium to long term the tax rate on earnings within the super environment is low. The maximum rate of tax on earning inside super is 15% per year and that can be reduced further with imputation or franking credits. Capital gains tax inside the fund is generally no more than 10%.
- In the longer term, from the age of 60 the income and capital gains on your super benefit is 0% if you move your benefits into a pension fund.
If you’re a member of a defined benefit scheme, any increase in your personal super contributions has the ability to increase the exit benefits you receive. For everyone else, contributions will generally be invested in diversified investment strategies which will compound over time.
Download our guide to getting the most from your defined benefit scheme.
Salary sacrifice and you
One of the most important things to consider when you’re thinking about salary sacrifice is that the earlier you start making contributions, the better off you could be. That said, there are limits to the amount you can salary sacrifice tax effectively.
Working with a financial planner to assess what you can afford to contribute from your take home pay is a great way to manage salary sacrificing. The advantage of professional advice is that you can contribute confidently, within your budget and within government limitations, knowing that your money will be there as a lump sum when you retire.
For example, your planner can help you decide whether salary sacrifice is right for you, or if you may be better off contributing any extra take-home pay to your mortgage.
If you’d like to know how salary sacrifice super contributions can assist with wealth creation and your retirement savings, speak to an expert. Call a StatePlus financial planner today on 1800 620 305 or fill out our contact form, and start planning for a rewarding future.
Next steps for you
- Make the most of your public sector benefit
- Basic Advice Series: Should I salary sacrifice? (Download PDF)
- Advice can save you more