3 reasons to salary sacrifice right now
26 September 2024
5
min read
Here are 3 reasons why it may be worth getting your head around salary sacrificing.
Any time is a good time to think about your finances and super arrangements, and right now it might be more important than ever to be familiar with what you may need to retire well with confidence.
Get your super on track
The Association of Superannuation Funds of Australia (ASFA) has created a Retirement Standard to help you understand how much super you might need to enjoy a ‘comfortable’ or ‘modest’ retirement.
ASFA’s June quarter 2024 figures suggest that single people will need $52,085 per year for a comfortable retirement, while couples will need about $73,337 per year.1
To retire modestly, the ASFA June quarter 2024 figures suggest that single people aged between 65 and 84 will need about $33,134 a year and couples will need about $47,731 per year.
To achieve a comfortable retirement, ASFA calculates the amount of savings required by retirement at age 67 are around $595,000 for a single person and $690,000 for a couple.
The figures in each case assume that the retiree(s) own their own home and relate to household expenditure.
Salary sacrificing is one option to consider to help set up a financially stable future.
What is salary sacrifice?
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.
3 reasons to salary sacrifice
Boost your super and pay less tax on salary sacrifice contributions
Salary sacrificing to super lowers your taxable income – so depending on your income, you could pay less tax.
Salary sacrifice contributions are taxed at 15% when they are received by your superannuation fund. If your income, plus before-tax contributions, is more than $250,000 a year, an extra 15% tax may be applied by the Australian Tax Office (ATO).
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.
If you are a low-income earner, there might not be benefits to salary sacrificing. You could be better of considering other options like the Government super co-contribution.
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.
Also keep in mind, that because superannuation is a compulsory, long-term investment designed to provide you with savings for your retirement, there are rules about what age you can access your super.
Combat the gender super gap
ASFA 2023 research2 shows that women retire with an average of 25% 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. The research shows the median super balance for those aged 60 to 64 at $211,996 for men and $158,806 for women.
If you’re a woman in the workforce, salary sacrificing is one method that may help you address the gender super gap.
You’re wary about your financial wellbeing
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.
Our research shows that 58% of women and 52% of men aren’t confident they will have enough money to retire.3
But it’s easy to perform a super health and financial wellbeing check. If you are a QSuper account holder, simply log in to Member Online, or download the QSuper app.
You may want to consider salary sacrificing if your circumstances allow, as one way to help get your super balance back on track.
Support for your super and retirement
Professional financial advice on your QSuper account is included with your membership.4
Find out more
1. Association of Superannuation Funds of Australia, Retirement Standard June 2024, at superannuation.asn.au/resources/retirement-standard, accessed 12 September 2024
2. The Association of Superannuation Funds of Australia, ASFA Research: An update on superannuation account balances, November 2023.
3. Survey of 1000 Australians carried out by IPSOS on behalf of Australian Retirement Trust, September to November 2023.
4. Any advice given is by representatives of QInvest Limited (ABN 35 063 511 580, AFSL 238274), wholly owned by the Trustee. As representatives, they may recommend ART products from time to time. So read the relevant Financial Service Guide at qsuper.com.au/fsg to tell you about that advice and how they’re paid.