Most people don’t start thinking about their superannuation until they near retirement, but early action could make a huge difference to your retirement savings. Contributing pre-tax salary to your super account, commonly referred to as ‘salary sacrificing’, is a great way to save on tax and also take advantage of your contribution caps. Despite its ominous name, ‘sacrificing’ your salary isn’t as scary as it sounds and making contributions is a good way to increase your retirement savings so you’ll have more to live on when you stop working.

But if that’s not enough to convince you, you should also consider the fact that you could expect to live for longer. That’s right, according to the Australian Bureau of Statistics, life expectancy is on the rise in Australia.i So you’ll have more time to enjoy life after work, but it also means your retirement savings need to last longer too.


What is salary sacrificing?

Put simply, salary sacrificing is a pre-tax contribution from your income to your super account. This arrangement allows you to increase your super balance while also reducing the amount of income tax payable on your wages. Evidently, this is a popular strategy for middle-to-high income earners who may benefit from tax advantages. That is, high income earners could be taxed up to 45 per cent of their income, while the super contributions tax rate is only 15 per cent.ii

But lower income earners, especially young adults who are just starting out in their career, should not be discouraged. In fact, you have one of the best advantages on your side – time. The earlier you start topping up your super the better; even if it’s by small regular amounts. So whether you’re topping up your super by $50 or $500 each month, your super investments have more opportunity to grow in the longer term the earlier you start contributing. This is due to the magic of compound interest – which happens when you start to earn interest on your interest.

To put this into perspective, if you’re 30 now and you start to put away $50 per week for 35 years, you will have an additional $246,000 for retirement (assuming a 5% rate of return). Think of the difference a sum like this could make to your lifestyle in retirement.


How much can I salary sacrifice?

Look at your income and expenses and work out how much of your income you could comfortably give up now, and invest for your retirement. Before you decide to embark on a salary sacrifice arrangement using superannuation contributions, you should also chat to your financial adviser about the possible implications, and ensure you do not lose out financially on your employment package.

It’s also important you keep in mind that your salary sacrifice contributions are counted towards your concessional contributions cap of $25,000 per year. Other contributions that count towards this $25,000 limit include compulsory contributions paid by your employer, contributions from any other jobs, and notional taxed contributions if you’re a member of a defined benefit fund.


How do I set up a salary sacrificing arrangement with my employer?

After you have determined the amount you will be sacrificing to your super, your next step is to set up a salary sacrificing arrangement with your employer. This is a contractual arrangement between you and your employer, and for your own protection, a written agreement ensures you can confirm the terms of the agreement if there is ever any confusion.

You can even include the timing of the payment of the super contributions in this agreement. Will it be paid at the same time you receive your weekly, fortnightly or monthly pay, or does the employer intend to pay the super contributions less regularly than your regular pay? It’s important you check the timing of your super contributions.

For more information about how to set up a salary sacrificing agreement with your employer, visit the ATO’s website.


Super is a long-term relationship – the more attention you give it, the greater the potential. So if you’re disheartened by your current super balance, now’s the time to talk to your employer or financial adviser to see if a salary sacrifice arrangement is right for you this new financial year. Once you take the first step to start salary sacrificing, you’re able to sit back and let the magic of compound interest do all the heavy lifting.


i Australian Bureau of Statistics (ABS), 2018, Life Expectancy at Birth. Retrieved from:  

i Australian Taxation Office (ATO), 2018, Tax on contributions. Retrieved from  


The information and any advice in this article 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. When considering whether to acquire a financial product, before making any decision, you should obtain the relevant product disclosure statement.