The paper "Self-Managed Superannuation Funds" is a perfect example of a finance and accounting assignment. Salary sacrifice into superannuation is basically an arrangement between a person and his employer through which the employee agrees to reduce his gross salary in order to top up the contributions made by the employer in the superannuation. Salary sacrifice contribution is essentially the making of contributions to the superannuation from a person’ s salary before tax but not from the salary after tax as is the case with the regular/ lump sum after-tax contributions (Piggott and Bei, 2006).
Thus, this strategy is good since it has the effect of reducing the amount paid for tax by the couple. This means a person is effectively paying a lesser income tax since the total taxable salary is reduced. It is worth noting that the employer superannuation contribution is taxed at a fixed rate of 15 % which is equivalent to the least tax margin rate. Therefore if Bettina sacrificed $ 10,000 this amount would be taxed favourably than if it was to be taken purely as the cash salary. In spite of the small amount of cash, Bettina may be having it cannot be overlooked since it can make a very big difference. The chart below shows how salary sacrifice contributions can really boost a person’ s super savings in the long run.
Just $25 extra a week from age 35 would add $58,500 to a person’ s ultimate retirement amount. An extra of $50 a week would make addition of $117,100. That is a little extra saving as of now in order to get a lifestyle of his choice in retirement. The assumptions made are based on the Australian Super calculator: Opening balance = $50,000 at age 35, the annual salary = $60,000, employer contributions = 9 %, before tax salary sacrifice contribution = $25 and $50 per week, Balanced Option investment return = 7.5 %, Weekly administrations fee = $ 1.50, investment management’ s fee = 0.72 %, Age at retirement = 65.
The ultimate balance expressed in current dollars, calculated within a 30 year’ s investment period.
Barrett, G. and Yi-Ping, T. (2007), Retirement Saving in Australia, SEDAP Research Paper No. 177, McMaster University.
Henry, A., (2006), The Who, What, When and Why of Generation Y, Sidney: AH Revelations.
Piggott, J. and Bei, L. ( 2006) Pension Reform and the Development of Pension Systems:An Evaluation of the World Bank Assistance, IEG Working Paper, World Bank, Washington, D.C.
Superannuation Circular (2006), Payment Standards for Regulated Superannuation Funds, retrieved 12.04.2011