A Personal Finance Feature by Peter Murphy, CEO, Christian Super

We’ve all heard the story of the 60 year old man who decides to visit his accountant and his doctor, just to make sure everything is OK financially and medically for his retirement.

His doctor has good news. “With all the advances in medical science, you’ve got at least another thirty good years ahead of you,” he says. The advice from his accountant is not so good. “You might live for another 30 years, but you can only afford ten of them,” he tells the man.

As the baby boomer generation gets older, this scenario is becoming more and more real. If you’re working, then there’s still time to do something about your financial situation when you retire and one option is salary sacrifice.

Salary sacrifice is an arrangement with your employer which allows you to receive part of your salary package in the form of pre-tax contributions to your superannuation fund. Your employer may also allow you to salary sacrifice other items, however the most common form of salary sacrifice is additional contributions to your superannuation.

 Legally your employer has to pay nine percent of your gross salary into your nominated superannuation fund, but there’s nothing to stop you from contributing more.  In fact the tax office wants to encourage people to do this – because they’re thinking long term. The more you have in your super fund when you retire, the less of a drain you will be on the government by way of the old-aged pension and other benefits. If the government is thinking long term, shouldn’t you?

Along with the long term benefit of greater assets, you also receive a benefit now as a pre-tax contribution made to your super fund may be taxed at a reduced rate, thereby reducing your assessable income so you pay less tax now.

Through salary sacrifice arrangements, you reduce your assessable income and boost your savings for your future.

Obviously if your decide to direct some of your salary into your super fund through salary sacrifice, you will have less take home pay and this is an important consideration.

How much should you salary sacrifice?

Before you decide to use your surplus income for additional superannuation contributions, think through whether this is the best way to use this money.

It might be better to:

• Direct the money to paying off debt, particularly if you have consumer debt or other non-deductible debt such as a home mortgage;
• Utilise other schemes like the government co-contribution; and
• Consider the limitation on the amount you can contribute to superannuation. There is an annual concessional contribution limit of $25,000 annually (or $50,000 annually until 2012 if you are aged over 50 years of age).  Concessional contributions include all employer and salary-sacrificed contributions.

It is strongly recommended that before you make any decision about whether or not to salary sacrifice, you should seek professional financial planning advice from a licensed financial advisor. Christian Super can connect you with a Financial Planner for financial advice consistent with Christian principles. You can contact Christian Super on 1300 360 907.