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Here are five reasons why it may be worth getting your head around salary sacrificing.
A new year is a good time to think about money and super arrangements, and it may be more important than ever before to be familiar with what you may need for retirement.
According to the Association of Superannuation Funds of Australia (ASFA), the cost of living a ‘comfortable’ retirement rose in 2021 at the fastest pace in a decade.1
ASFA’s September quarter 2021 figures show that couples aged around 65 living a comfortable retirement need to spend $63,799 per year and singles $45,239, which is up by 0.9% and 1.0% respectively compared to September 2020.
As a result of accelerating cost-of-living pressures, which have continued to climb during the COVID-19 health crisis, it may be important to consider how to build sufficient retirement savings.
Salary sacrificing is one option to consider to help set up a financially stable future.
Salary sacrifice is an arrangement with an employer for an employee to contribute a portion of their salary to their superannuation account before they pay tax on it, instead of it being part of their take home pay. This is an extra amount on top of the employer’s compulsory super contribution and is voluntary.
If you earn more than $45,000 per year, salary sacrificing could benefit you.
Salary sacrifice contributions are taxed at 15% when they are received by your superannuation fund, unless you earn more than $250,000 per year including super, where your salary sacrificed contributions would be taxed at 30%.
Because the extra payments are taken out of your salary before you’ve paid income tax, you only pay 15% tax on that amount instead of your marginal tax rate. Most people’s marginal tax rate is typically higher than 15% and could be as high as 45% plus the Medicare Levy of 2%.
Put simply, you generally end up paying less tax on that money and it could grow your super balance.
How much you contribute is up to you but there are limits. If you go above these limits you may pay extra tax. Find out more about contribution caps.
In addition to paying a lower rate of tax on your salary sacrificed amounts, the more of your before-tax salary you choose to sacrifice into your super, means the lower your taxable income – and this could mean paying less at tax time.
Due to the economic impacts of COVID-19, the Australian Government allowed people to dip into their super funds through its superannuation early release scheme. The early release scheme closed on 31 December 2020.
You may want to consider salary sacrificing into your super to help make up for any lost funds if you accessed the from your super during this process.
Use the salary sacrifice calculator to see how much you could benefit.
Women retire with an average of 47% less super than men due to a variety of factors such as lower pay and taking time out of work to care for children and family.
Research on the impact of the Australian Government’s superannuation early release scheme on women2 found women aged 55 to 59 went from having 44% less super than men to 51% less super than men after early release. Women aged 25 to 34, went from having 21% less than men to 46% less than men after accessing early release.
If you’re a woman in the workforce, salary sacrificing is one method that may help you address the gender super gap.
In times of increased financial market volatility, your super balance may have taken a hit and you may not be feeling as confident in your financial wellbeing.
You may want to consider salary sacrificing if your circumstances allow, as one way to help get your super balance back on track.
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Find out more
1. Media Release, 10 November 2021, Living costs for Australian retirees rise at fastest pace in a decade,
Association of Superannuation Funds of Australia at superannuation.asn.au
2. Women in Super, 27 August 2020, Gender super gap set to widen for women who applied for COVID early release, at www.womeninsuper.com.au
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