A little sacrifice for big gains
What is salary sacrifice?
Salary sacrifice means you pay a portion of your pre-tax salary into your super account to boost your super. As well as boosting your super savings, it effectively reduces your gross salary and can mean a reduction in the income tax you pay.
What are the benefits?
1. Your super balance grows faster, and benefits from compound interest.
2. You pay less tax on your additional contributions (15% rather than marginal income tax rate).
How do I start making contributions?
Simply contact the human resources or payroll office at your work and let them know you’d like to start salary sacrificing.
The earlier you start, the better
When you salary sacrifice you benefit from compound interest. Which means the earlier you start the more it's going to benefit your future super balance.
While you can start salary sacrificing at any time, doing so when you're younger can make a significant difference to your super balance over the long term. That's the power of compound interest.
In the example below you can see what happens when you tuck a little extra money into super for 10 years. The blue bar represents someone who does not make any extra contributions and relies on the standard 9.5% employer contribution, the green and yellow bars show what would happen if that same person contributed an additional $2000 annually for a ten year period, one starting at 30, the other at 50 years of age.
While the extra contributions are exactly the same, salary sacrificing early can make a big difference to the long term super balance. That’s because your money benefits from compound interest. So the earlier you can start the better.*
Assumes super balance of $5,700 at age 30. Income is $60,000 p.a. Employer contributions are 9.5%. Earnings on super balance is 6%, net of fees and
taxes. Additional contributions are $2,000 p.a., for 10 years only, with contributions made at the beginning of each year.
Things to consider:
• You can make $30,000 in additional contributions to your super every year (or $35,000 if you’re 50 plus) before the marginal tax rate applies.
• Salary sacrifice is in addition to your mandatory 9.5% superannuation guarantee contributions.