Is it worth salary sacrificing your super?

Are you worried about having enough money in retirement?


If you’re like many people, the thought of having to survive solely on your savings in retirement, might cause you some sleepless nights. The good news is, it’s never too late to start growing your retirement income, no matter what your situation.

Salary sacrificing into super is a long-term wealth strategy that may help to grow your retirement savings over time.

Here’s how it works, the benefits and some things to consider when deciding if it’s right for you.

What is salary sacrificing into super?

Salary sacrificing into super is about sacrificing some of your income now, to save for your retirement later. It means you’re not just relying on your employer’s regular Superannuation Guarantee contribution of 10 per cent to save for your future.

How does salary sacrificing into super work?

It involves setting up an arrangement between you and your employer where you agree to contribute an additional amount into your super from your pre-tax income.

As you’ll essentially be taking home less money each pay cycle, you should consider how much of your income you can afford to give up. There are a number of calculators available that may help you with this.

What are the benefits of salary sacrifice into super?

Salary sacrificing into super offers several benefits.

  • The amount you salary sacrifice into super is generally taxed at 15 per cent, which for most people will be less than the tax you may pay on that income1 personally if it was paid to you as salary. This also means you’ll reduce your taxable income as you’ll essentially be taking home less money. You benefit because you pay less tax while boosting your retirement savings.
  • The growth of your investments inside super is also taxed at 15 per cent, which may be less than the tax you may pay on your investment earnings outside super2.
  • You’re saving additional money towards your retirement without having to do anything. The regular investments happen automatically via your employer’s payroll system, so you can relax knowing your money is working hard for your future.

The power of compounding returns

As super is a long-term investment, it’s able to take advantage of the power of compounding returns – basically you’re not only earning a return on your initial investment, but also on the returns that’s added to it over time – that’s return on return, or often referred to as interest on interest.

Are there any restrictions with salary sacrificing into super?

There are a couple of important things to keep in mind if you’re thinking about salary sacrificing into super.

There’s a limit on the amount you can contribute into super every year. Salary sacrifice is considered a “concessional contribution”, along with your employer’s contributions and any personal contributions you want to claim a tax deduction for. In the 2021/22 financial year, the concessional contributions cap is $27,500, and the tax benefits associated with salary sacrifice is only available if you contribute less than this amount per year from your pre-tax income3.

It’s also important to remember that all the money you contribute into super is generally not accessible until you reach your preservation age and retire. So, although super is a great way to invest for your retirement, make sure you don’t leave yourself short in the years before that. A financial adviser can help you create a plan of smart financial strategies for the short, medium and long term.


Take action

Things you should know

This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 1 July 2021.  

This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.  It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. No company in the Westpac group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of investing in property, shares or superannuation can impact individual situations differently and you should seek specific advice from a registered tax agent or registered tax (financial adviser).

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis.  There will be tax consequences if you breach these caps.  For more detail, speak with a financial adviser or visit the ATO website.