The Pros and Cons of salary sacrifice

Is Salary Sacrifice a good strategy for me?

A very popular financial strategy is to salary sacrifice part of our income into superannuation. This is an excellent method of reducing tax and is very popular for this reason.

Saving tax is always a good thing but, as we all know, in this world you need to give something to get something and that is certainly the case with salary sacrifice. In order to get the tax saving, we give up access to our money until we reach a condition of release. Outside exceptions, this is generally retirement or reaching age 65.

The tax benefits are excellent. Money salary sacrificed is taxed at 15% instead of marginal tax rates. This can be a tax saving of up to 30% for those on the maximum tax rate and is a saving of 17.5-22% for most people (those earning between $37,000-$180,000).

In addition, earnings inside super are taxed at 15% for income and 10% for capital gains. This is instead of the marginal tax rates for earnings outside the super system.

In practice, if someone earning $80,000pa was to salary sacrifice $200 per week pre-tax into superannuation, this would reduce their take home pay by $135 per week.  This will reduce their overall tax by $1,820pa and would result in a $8,840pa (net of tax) contribution to super.  

These additional contributions, invested for the long term with the benefits of compounding interest, will significantly increase funds available at retirement.

It is clear that salary sacrifice is a terrific way to save funds for retirement. However, there is a cost for doing so. As mentioned earlier, money in the super system can’t be accessed until a condition of release is met. Other than disablement or severe financial hardship, this means reaching age 65 or retirement.

Unless you are quite close to retirement, salary sacrifice involves denying yourself access to your money for a long period of time.  In order to determine if this is appropriate, we like to look at what other goals the client has and whether they have sufficient income and assets to achieve them.

Personally, I am conservative as an advisor and see the liquidity issues of tying up funds in super as a serious consideration. I like to ensure that, before contributing funds to super, my clients have available assets to achieve more immediate goals as well as funds for unforeseen expenditures.


Salary sacrifice is most appropriate for people whose primary goal is saving for retirement as well as those with high levels of disposable income and assets.  These people are able to achieve immediate goals and still save for retirement. That being said, salary sacrifice is something that should be considered for most people.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services


  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State


  • University of Western Sydney
  • Penrith High


As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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