Salary sacrificing involves an investor or an employee essentially putting in an arrangement with their employer, whereby they arrange for a sum of money to go directly into their superfund rather than deciding or opting to take the funds paid into their account. There is a cap on the salary-sacrifice rates. Typically for anyone below the age of 50, up to $30,000, including the superannuation guarantee. Basically, this allows the employee only to pay 15 percent tax on the funds going into the superfund, rather than, for example, up to forty-six and a half percent if they’re in the top margin of the tax bracket. Particularly where this becomes very tax effective is when the client is over the age of 55, or over the age of 60, when they get close to retirement and then can start a transition to retirement arrangement and actually take a portion of their superfund out, between four to ten percent, as a pension. The earnings in the pension account will be tax-free. Therefore, basically, it allows people to put more money into their superfund at a much lower tax bracket on their way in and when they take funds out over the years after the age of 60, it becomes tax-free.
To establish a salary sacrificing arrangement, first you must confirm that your employer allows for salary sacrificing arrangements and secondly that your superfund will allow the contributions. Once you have confirmed that you can start the process, from there it is as simple as directing your employer to take a portion of your salary and contribute it directly on your behalf to your nominated superfund. The employer will be responsible for notifying your superfund of the correct contribution type and handling of administrative paperwork. You must ensure that you are not breaching any contribution caps as part of the arrangement (to avoid paying excessive tax) and thus it is important to get advice from your advisor or accountant on this matter.
VFS can look at the client’s individual and specific circumstances to determine, first of all, if salary sacrificing is appropriate. Salary sacrificing might not be appropriate for everyone. Everyone needs to take a look at how best to utilize the income that they are producing. So for example, for certain individuals, it may be best to focus on repaying some of their debt. If they have a mortgage, they might have some other goals they’re working towards too and aspirations, whether it be a business or investing outside of super, they’re asking for a bit more flexibility with their investments; they might be a long time away from retirement, and they don’t want to lock that money in, so to speak, in their superfund for the next 20 or so years without having any way to access it. Whereas, with some people, salary sacrifice could be a great tool to not only do well but also actually reduce the amount of tax that they pay.
Vertical Financial Solutions is an independent firm. Which is very, very important when you are looking for an adviser to help find the right product for you. This means that we’re not aligned to an institution, or a retail fund, or a particular industry fund. So we will not steer our client in a direction of a particular fund due to a reason that we’re aligned with that fund. We will simply shop around, we will compare the products, we will compare the flexibility, the pricing, the options. And everything that the client should be aware of including the insurance options within superannuation. And really try to find the right product for that particular client, something that will suit them over the long term and meet their retirement objectives.