How to supercharge your super (without hurting your pay packet)

Noticed a bit of a boost in your pay packet recently? Widespread tax cuts took effect on 1 July 2024, seeing income tax reduced for all Australian tax payers. The tax cuts were designed by the government to help Australians through the current cost-of-living pressures.

All Australian taxpayers are entitled to the tax-free threshold of $18,200, which means the first $18,200 you earn is tax free each year. Tax on annual earnings between $18,201 and $45,000 has decreased from 19% to 16%, and on earnings between $45,001 – $135,000 it decreased from 32.5% to 30%. Check your tax cuts out by looking at your pay slips, bank account, or visit taxcuts.gov.au.

There are lots of things you could do with the increase in your take-home pay. Many people will put it towards essential spending or paying down debt.

You also have the choice to invest some of it into your super, if building your retirement fund is important for you. These tax cuts could offer you a way to increase your funds without impacting your pay packet too much. The secret is salary sacrifice.

If the word ‘sacrifice’ conjures more dread than joy, or the idea of giving up some income during a cost-of-living crisis doesn’t feel right, let’s look at how the new tax and super changes could help you grow your super without impacting your pocket.

A salary sacrifice contribution is simply adding a portion of your pre-tax income to your super. As part of the 1 July changes, concessional contributions to super (taxed at 15%*) are now capped at a higher level of $30,000 per year. This is the maximum you can add by salary sacrifice. Crunch the numbers and see if this might work for you.

First, let’s bust a couple of salary sacrifice myths.

MYTH: It’s complicated to set up and hard to change.
FACT: It's usually a simple form and can be changed at any time.
To set up salary sacrificing, you’ll most likely have to fill out a form that is sent to your HR or payroll people. You can probably find the form on your company intranet, but if in doubt just drop them a line and ask. You can make changes to this whenever you like, including cancelling it (noting that your employer may have a cut-off date for payroll changes ahead of each payday). The forms usually allow you to choose either a dollar amount or a percentage – choose whichever makes the most sense to you. It doesn’t have to be a lot.

MYTH: It’s only for older people.
FACT: The younger you are, the more time it has to grow.
Anyone under 75 can choose to salary sacrifice. Adding to your super while you’re younger can allow it to grow over a longer timeframe – thanks to compound interest - leaving you with more income when you’re older.

MYTH: Salary sacrifice is for high earners.
FACT: Salary sacrifice is more beneficial for people earning under $250,000 a year.
By choosing the right amount of salary sacrifice for you, you can limit the impact to your take-home pay. People with annual incomes above $250,000 have less ability to salary sacrifice. This is because there’s a regulated limit on before-tax contributions of $30,000 (the concessional cap). Compulsory super contributions (called superannuation guarantee) are paid at 11.5% of salary, and for higher incomes this takes people closer to the cap.
*Unless you earn over $250,000 p.a. when contributions tax rises to 30%

Is salary sacrifice right for you?

Everyone’s financial circumstances and goals will be different, so we cannot tell you whether salary sacrifice is right for you. Here are some pros and cons.

Pros

Cons

Helps build a higher retirement balance

Putting money away during a cost-of-living crisis could feel extravagant

May result in you paying less tax overall – you’ll only pay income tax on what’s left after your salary sacrifice contributions

It’s a long-term commitment – you won’t see the money again until you are at retirement age, or meet the criteria to access your super early

Builds wealth-growing habits: You can ‘set and forget’ to boost your balance over time.

Take advantage of concessional contribution cap before you near retirement age

Debt vs salary sacrifice

Another question often asked about salary sacrifice is whether it’s better to pay down debt or add to super. Here are a few questions to ask yourself to help you decide what’s best for you.

What’s your debt comfort zone?
While lenders and economists will have an opinion on what is a comfortable level of debt (ratio of debt to income), your personal opinion might differ. How big is your desire to pay down debt?
How close are you to retirement?
Will you be retiring with debt? Is that a concern? Do you plan to stay in your home, or move and change your debt position? Will the value of your property increase?
Which concerns you more: debt or retirement savings?
Which idea brings you more satisfaction: paying off debt or building your retirement account? Does one feel more urgent than the other? Can you strike a balance between the two?

This is your decision, and it isn’t always a simple one. With so many variables at play – interest rates, income, level of debt, age – there’s lots to think about, and work out your own pros and cons list to see if it feels right for you. And if you have any questions, remember that our smartCoaches are here for you!

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