You can arrange for your employer to make additional pre-tax contributions to superannuation. This is an effective means of boosting retirement savings for those earning more than $30,000* a year due to the different rates of tax that apply to superannuation contributions and normal income.

Example

Let’s look at Tom. He earns $50,000 a year and has living expenses of $35,000 a year. How much can he save towards his retirement without a salary sacrifice arrangement?

Tom approaches his employer who agrees to make additional (salary sacrifice) contributions to Tom’s super fund. Tom requests additional contributions of $7,000 be made. Tom’s salary drops to $43,000, and the effect on his take-home pay and his savings capacity is as follows:

By entering into the salary sacrifice arrangement, Tom can save an additional $1,385 a year towards his retirement.**

*Salary Sacrifice provides a benefit where the marginal tax rate (i.e. the tax payable on the last dollar earned) is significantly greater than the tax deducted from taxable super contributions. Super contributions are taxed at 15%, and those earning less than $30,000 a year have a marginal tax rate of 15%. Therefore Salary Sacrifice does not provide a significant tax benefit for lower income earners.

**As Salary Sacrifice arrangements reduce salary, they may reduce the level of some other benefits, such as the employer’s 9% superannuation contributions. When negotiating Salary Sacrifice arrangements with an employer, make sure Superannuation Guarantee contributions and other benefits, such as the salary used for overtime, will not be reduced.