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Super: A worthy sacrifice

Every Issue

Cite as: (2007) 81(7) LIJ, p. 92


Salary sacrifice is an effective way to save for super, but there are traps for the unwary.

The federal government’s “Better Super” changes have confirmed superannuation as the preferred long-term savings vehicle for Australians.[1]

Significant tax concessions offered in the “Better Super” changes make super the most tax-effective way to save.

Another effective and increasingly attractive way of saving for super involves “salary sacrifice”, which involves asking your employer to direct part of your salary (before tax) directly into your super fund.

However, there is a need for caution in a few cases, where little-known rules mean some employees who salary sacrifice into super may not be contributing as much as they expect.

Most employees naturally expect that if they sacrifice part of their salary into super, it ends up in their fund on top of the 9 per cent superannuation guarantee contribution (SGC) that their employer pays. Regrettably, this is not always the case.

Employees may not realise that a few employers count salary sacrifice contributions to help meet their obligation to pay the statutory 9 per cent SGC.

Effectively, this means those employees who salary sacrifice forfeit some of their salary and their employer ends up being advantaged as they can pay less SGC.

It is important the legislation governing the Superannuation Contribution Rules changes so this cannot happen.

Also, the Rules allow employers to calculate their superannuation guarantee obligation as 9 per cent of an employee’s post-salary sacrifice earnings instead of 9 per cent of pre-salary sacrifice earnings.

If an employee earning $60,000 decides to sacrifice an additional $5000 into their super, the employer is by law allowed to calculate its 9 per cent SGC contribution based on the reduced $55,000 salary and not the employee’s gross salary of $60,000.

When you add to this that employers are not obliged to disclose their salary sacrifice contribution policies to their employees this reduces transparency and can create problems.

While most employers do not apply these rules, there is evidence a small number do.

While in doing so they are not breaking the law, it is concerning that there is potential for an employee’s total package and total super contributions to be lower than they would expect.

Employers should always inform their employees of their salary sacrifice policies.

If employers do not proactively disclose their policies, employees need to ask questions before entering into a salary sacrifice arrangement with their employer.

The most important questions include:

  • how will a salary sacrifice arrangement impact my take-home pay?; and
  • how will it affect my total super contributions?

If in doubt, you should seek professional financial advice.

A growing number of Australians have heeded the federal government’s call to save more for their retirement and are paying additional contributions into super, including by salary sacrifice.

Regrettably, by depending on the salary sacrifice policies of their employer, some Australians will find their contributions fall short of their expectations.

Another concern is that some employers do not even let their employees salary sacrifice and, incredibly, some employers who do allow salary sacrifice charge their employees an administration fee.

Having regard to the federal government’s stated policy of encouraging saving via super, the laws around salary sacrifice need review to ensure all Australians have access, and that such access is on equal terms.


ANDREW PROEBSTL is chief executive of legalsuper and company secretary of its trustee. He is also secretary of the Law Institute of Victoria’s Superannuation Committee and a member of the Victorian Executive of the Association of Superannuation Funds of Australia. He can be contacted on ph 9607 9401, email aproebstl@legalsuper.com.au or visit http://www.legalsuper.com.au.
In view of the increasing questions about salary sacrifice from our members, legalsuper has developed an easy to read guide to help understand the advantages of salary sacrifice. If you would like to obtain a copy, please contact David Eastwood at deastwood@legalsuper.com.au.


[1] “Better Super” reforms introduced by the federal government will be effective from 1 July. For more information on the reforms, see http://www.ato.gov.au/bettersuper

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