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Salary sacrifice

Salary sacrifice is one of the most effective ways to grow your super savings while potentially paying less tax.

Topping up your super using your salary can be a great way to increase your super balance at retirement. You simply need to speak to your employer and request that they pay part of your pre-tax salary into your super fund*.

Three good reasons to consider salary sacrificing:

  1. Salary sacrificing lowers your assessable income for tax purposes. For example, Jane, aged 50, earns $80,000 per year and makes salary sacrifice contributions of $200 per month. As a result, she saves $468 in tax per year.
  2. Salary sacrificing now can significantly increase your super balance at retirement. Using the above example, if Jane begins salary sacrificing at age 50 she will have an additional $39,000 in super at retirement. If she begins at 40 she will have an extra $76,000 at retirement.
  3. It’s easy. Simply ask your employer to redirect a portion of your pay as a contribution to super.

Know your limits

Remember there are limits on how much you can put into super each year by salary sacrificing. Most people can contribute $25,000, including the employer’s 9.5% super guarantee contribution. 

Case study: salary sacrifice

To highlight the benefits of making small additional contributions to your super over time, here we provide a case study comparing the retirement outcomes of two different investors. Meet Jenny, aged 30, and Simon, aged 45, who are both LGS members. Jenny starts adding an extra $100 per month to her super fund at age 30, while Simon salary sacrifices $300 per month from age 45. Even though Simon has contributed a greater amount to his super, Jenny will have $103,698 extra at age 60 and Simon $80,825. Why? Jenny has had longer for her super to benefit from reinvested returns.

 JennySimon
Age starts salary sacrificing 30 45
Investment timeframe 30 years 15 years
Total amount invested (after contributions tax) $30,600 $45,900
Balance at age 60 $103,698 $80,825

Calculations assume a 7% annual return and 15% contributions tax. This example only takes into account salary sacrificed contributions.

*Speak to your employer to see if a salary sacrifice arrangement is available.


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