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When one in five current retirees say that their retirement finances are worse than they’d anticipated, it’s clear that it pays to get prepared before retirement.1 There are a number of strategies to boost your retirement finances, but there’s one option that offers a new way to top up your super without even noticing a change to your budget.

The tax changes that came into effect on July 1 20242 offer a new opportunity for pre-retirees to save on tax, contribute a little more to their super and make a big difference to their super savings, without taking a huge hit to their take home pay. This article will explain how diverting tax savings, plus adding little extra into topping up your super works and what a difference it could make by the time you retire.

Tax tips

The new stage three tax cuts have arrived, and since 1 July, we've all been enjoying a little more take-home pay. These tax cuts provide anywhere from $354 annually for those on a yearly income of $30,000, up to $4,529 for high-income earners.3 For some, the extra cash will need to go straight to covering essential expenses. But if you can do without the top up to cover your living costs, redirecting your tax savings into your super fund as extra contributions could make a big difference in the future. For instance, a 55-year-old earning $80,000 who adds their weekly $40 tax cut to super could have almost $25,000 extra by retirement at age 67.4

Based on a typical single female 55-year-old Aware Super member with an average salary of $85,000 invested in the MySuper Lifecycle option. Investment returns follow Aware Super’s CPI + return objectives. Assumptions include wage inflation and age-based promotional scale. Salary sacrifice contributions are assumed to remain constant in real terms. All numbers are presented in real terms using an AWOTE deflator of 3.5% p.a. This example is for illustrative purposes only and is not intended to provide a guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period based on Aware Super’s investment objectives. Actual returns year on year may vary materially and can be negative as well. If investment returns/inflation are higher/lower, final balances will differ.

Impact of Stage 3 tax cuts from July 1 2024

Scroll table horizontally on mobile

Taxable Income Annual tax saving
$20,000 $0
$30,000 $354
$40,000 $654
$50,000 $929
$60,000 $1,179
$70,000 $1,429
$80,000 $1,679
$90,000 $1,929
$100,000 $2,179
$120,000 $2,679
$140,000 $3,729
$160,000 $3,729
$180,000 $3,729
$200,000+ $4,529


Source: Federal Treasury Tax Cut Calculator

 

How does salary sacrifice work?

Salary sacrifice means asking your employer to have part of your before-tax wage or salary paid directly to your super instead of receiving the money as wages.

The contributions made through salary sacrifice are classified as concessional contributions. They are taxed at a rate of 15% within your super fund. This rate is often lower than the marginal tax rate you might otherwise pay on that income, resulting in tax savings. By salary sacrificing, you reduce your taxable income, which can lower your overall tax liability.

For example, if you are in a higher tax bracket paying 37% or more, diverting the portion of your salary that increased means it will be taxed at just 15%. You can save on tax and increase the amount of money going into your retirement savings at the same time.

SASS contributing: Salary sacrifice for SASS contributing members

If you are a contributing member and are already contributing at the maximum of 9% of your superable salary, then you can’t increase your contributions in SASS. If you want to make additional before-tax (salary sacrifice or tax deductible) contributions into super above the maximum 9%, you’ll need to open an account with another super fund. Importantly, if you’re making contributions to a second super fund (in addition to SASS) you will need to make sure you stay within the annual contributions cap set by the government.5

If you are contributing between 1-8%, you can increase your contributions up to 9% in SASS, but you’ll need to plan ahead. You only have one opportunity at 31 December each year to increase your rate of contribution.

Bear in mind that changing your contribution rate may mean you lose the special condition for SASS members, which deems all before-tax contributions to be within the cap limits. In fact, SASS will report only the amount up to the cap to the ATO. Members lose this special condition if they move to a higher benefit category than the category they were in on either 12 May 2009 or 5 September 2006.

 

Contribution cap protection

To find out if you’re eligible for contribution cap protection, call State Super Customer Service on 1300 130 095 or check under your most recent statement under ‘Your membership details – Contribution cap protection’.

 

SASS deferred members: Staying within the contribution limits

There are limits on how much you can pay into your super fund each financial year without having to pay extra tax.6 These limits are called 'contribution caps'. Currently, the concessional contributions cap is $30,000. This includes employer contributions, salary sacrifice amounts, and personal contributions for which you claim a tax deduction. If you have multiple super funds, all your contributions across these funds are added up and counted towards your caps. Exceeding these caps can result in additional tax liabilities.

 

Let's see how Sue boosts her super and saves on tax with salary sacrifice

Let's see how Sue boosts her super and saves on tax with salary sacrifice.

Sue is aged 62 and plans to retire at 63. Sue believes she’ll need an income of $61,000 a year to live comfortably in retirement. This figure will need adjusting each year to account for the rising cost of living.

Sue decides to grow her super through salary sacrifice.

She’ll have: 

  • A current salary of $105,000 (before-tax)
  • SASS benefit: $500,000
  • Recently paid off her mortgage
  • $10,000 in shares
  • $20,000 in the bank.
     

The opportunity

Sue can grow her super and save on tax by salary sacrificing to her super. By taking advantage of the new tax cuts plus adding a little more of her own salary, Sue can make a big difference to her super savings at retirement.

The strategy

Sue’s financial planner suggests that she considers working two more years to meet her retirement income needs of $61,000 per year.

After talking to an Aware Super financial planner, Sue decides to:

  • delay her retirement by two years, and
  • increase her contributions to $689 per fortnight which is roughly what she was paying in mortgage repayments.
     

By doing this, Sue's take home income reduces by around $12,000 per year. However, by making extra contributions to her super, Sue saves $3,046 per year on tax by salary sacrificing and retires with $89,000 more in super.

Tax savings

Sues’s salary is taxed on the amount remaining after the contribution is deducted.

For example:

Sue earns $105,000 per year and adds $689 per fortnight into her super ($17,914 per year). Her taxable income is reduced to $87,086. 

Sue saves $3,046 in tax in the first year!

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A fictional scenario for demonstration purposes.

Assumptions: CPI – 2.5%; saving cash account – 3.8%; Pension (Sue): investment return 5.75%, indexed by CPI; share portfolio – income (4.9%) and growth (4.8%).

This example is for illustrative purposes only. It relies on various assumptions. If actual circumstances differ from these assumptions, actual results will be different.

Salary sacrifice calculator

Could you be salary sacrificing more contributions to SASS? Use this calculator to discover how additional salary sacrificing could increase your final SASS benefit.

Use the SASS calculator

 

Things to consider

Before opting to salary sacrifice into your super, it's important to assess your current financial situation and work out how much additional money you can afford to contribute to your super. It's also vital to understand that money contributed to super typically cannot be accessed until you meet a condition of release, such as retiring and reaching the preservation age. If you can make it work, though, diverting extra cash into super contributions is one of the best ways to increase your retirement savings.

Need help?

If you need help deciding what’s right for you, we’re here to help. Call us on 1800 841 633 to book a no-cost, obligation-free appointment with an Aware Super financial planner

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Next steps for SASS deferred members

If you’re a SASS deferred member, knowing your options can help you make sure you have the funds to suit your retirement lifestyle.

Next steps

Where to next?

Super and your retirement spending

How a pension with a super fund works

A quick quide to your SASS statement

Market review and outlook

Back to SASS edition 17

Disclaimer

1 TAL Retirement Whitepaper 2024

2 Individual income tax rates and threshold changes | Australian Taxation Office (ato.gov.au)

3 Money Magazine, How to Boost Your Super with your Stage 3 Tax Cut

4 Aware Super Projections

5 Tax cut calculator (taxcuts.gov.au)

6 Caps, limits and tax on super contributions | Australian Taxation Office (ato.gov.au)

General advice only. Consider if this is right for you having regard to your objectives, financial situation, or needs, which have not been accounted for in this information. Read the PDS and TMD before deciding to acquire, or continue to hold, any financial product. You should read the Financial Services Guide, before deciding about our financial planning services. Issued by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL 238430); wholly owned by Aware Super (ABN 53 226 460 365).

This example is for illustrative purposes only. It relies on various assumptions. If actual circumstances differ from these assumptions, actual results will be different.

Before contributing, consider the relevant superannuation thresholds including the current annual limit for all before-tax contributions and after-tax contributions. Exceeding any of these thresholds, may reduce any tax benefits you could receive. Visit aware.com.au/grow.