Salary sacrifice just got even better

THERE is good news for anyone still working, and who will be 60 or more by next June.

The increase in the superannuation concessional cap from $25,000 a year to $35,000 a year - this is now law.

It means that salary sacrifice just got even better.

Take Jack aged 60 who earns $105,000 a year, which puts him in the 38.5% tax bracket. His employer is required to contribute $9712 (9.25%) to super for him so he is still able to contribute an extra $25,288 to super as a concessional contribution.

He increases the amount he salary sacrifices to super by $25,288 which reduces his take home pay by $15,552 a year. The contribution will incur a 15% entry tax of $3795 but he still enjoys the experience of having his superannuation boosted by a net $21,503.

He is $5951 better off - it's a no-brainer!

There is another strategy he could use which would put even more money in his pocket - start a transition to retirement pension. (TTR) He would still salary sacrifice at the same level as before but he would start to draw a pension from a superannuation fund. Immediately that starts his superannuation fund ceases to pay tax, which means higher after-tax returns.

It's a possibility that a pay cut of $15,558 a year, caused by the salary sacrifice, would leave the family finances a bit short. If that's the case he could simply use part of the income from the TTR to make up any shortfall - if his budget can cope with his reduced income, he could contribute the pension straight back into superannuation as a non concessional contribution on which there is no entry tax.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email:

Topics:  noel whittaker opinion superannuation

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