Superannuation
Learn how salary sacrifice into super works, the potential benefits, important considerations and whether the strategy may be appropriate for your circumstances.
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A simple strategy that can make a meaningful difference over time
Many Australians have heard of salary sacrifice but are unsure how it actually works.
Some believe it only benefits high-income earners.
Others assume it is complicated or only worthwhile later in life.
The reality is that salary sacrifice can be a valuable long-term strategy for many people, particularly when it forms part of a broader financial plan.
Used appropriately, it can help increase your retirement savings while potentially improving the tax efficiency of your contributions.
In this guide we'll explain:
Salary sacrifice is an arrangement where you agree with your employer to direct part of your pre-tax salary into your superannuation account instead of receiving it as take-home pay.
These contributions are generally treated as concessional (before-tax) contributions.
Salary sacrifice forms part of your overall concessional contribution limit, together with employer super contributions and other concessional contributions.
The Australian Taxation Office publishes current contribution limits and eligibility requirements.
Many Australians use salary sacrifice because it may help them:
For many people, small regular contributions made over many years can have a meaningful impact through compounding.
While salary sacrifice may provide taxation benefits, that should not be the only reason to use the strategy.
The real benefit is consistency.
Contributing regularly throughout your working life allows your investments more time to grow.
Even modest additional contributions made over many years may significantly improve retirement outcomes.
The process is generally straightforward.
You agree with your employer to contribute part of your salary directly into your nominated superannuation fund before you receive your salary.
Your employer then forwards those contributions together with any compulsory employer super contributions.
The amount you receive in your bank account is reduced because part of your salary has been redirected into superannuation.
Not necessarily.
Whether salary sacrifice is appropriate depends on factors including:
Someone saving for a house deposit may have different priorities from someone approaching retirement.
The strategy should always be considered within the context of your broader financial plan.
Both salary sacrifice and personal deductible contributions may help increase concessional contributions to super.
The main difference is how the contribution is made.
Salary sacrifice is arranged through your employer before your salary is paid.
Personal deductible contributions are generally made directly by you, after which you may choose to claim a tax deduction if you satisfy the relevant requirements.
The most appropriate approach depends on your employment arrangements, cash flow and personal circumstances.
One of the most common mistakes is forgetting that compulsory employer super contributions generally count towards your concessional contribution limit.
If you salary sacrifice without considering employer contributions, you may contribute more than intended.
Before making significant additional contributions it is important to understand your total expected concessional contributions for the financial year.
Current contribution limits are published by the Australian Taxation Office.
While increasing retirement savings is important, it should not come at the expense of other financial goals.
You may also need to consider:
A balanced financial plan considers all of these objectives together.
Some of the most common mistakes include:
Salary sacrifice works best when reviewed regularly.
A review may be appropriate if you:
Your strategy should evolve as your circumstances change.
Salary sacrifice is rarely about producing dramatic results in one year.
Its strength comes from consistency.
Making additional contributions over many years allows your retirement savings to benefit from:
These factors often have a greater impact than trying to predict markets or changing investment strategies frequently.
In many cases, yes.
However, arrangements are generally made with your employer, so you should understand your employer's processes and any timing requirements.
Yes.
Because part of your salary is redirected to superannuation, your take-home pay is generally reduced.
Potentially.
A new arrangement generally needs to be established with your new employer.
Not necessarily.
Both approaches may be appropriate in different circumstances.
The most suitable strategy depends on your financial position and objectives.
Reviewing your strategy annually, or whenever your income or financial circumstances change, can help ensure it continues to align with your goals.
About the author
Founder & Principal Financial Adviser
Josh Hampton is the Founder and Principal Financial Adviser at Hampton Wealth Management, helping professionals, families and retirees make confident financial decisions.
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Your superannuation is likely to be one of your most valuable assets. Regular reviews can help ensure your contributions, investment strategy, insurance and retirement planning remain aligned with your long-term goals. If you'd like personalised advice tailored to your circumstances, we'd be pleased to arrange a complimentary initial meeting to discuss your options.
