There are a number of risks and disadvantages of salary sacrificing into superannuation.

Understanding the disadvantages of salary sacrifice is important before using this strategy to save towards retirement.

The risks and disadvantages associated with a salary sacrifice arrangement include lack of accessibility, fluctuations in savings and possible reduction in employer contributions.

While these are the main disadvantages of salary sacrifice arrangements, other risks also exist.

The scope of article is limited to salary sacrifice super contributions.

It does not include information on salary sacrificing other items, such as mortgage, rent, car, laptops, etc.

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However, some of the same risks and disadvantages may apply.

A salary sacrifice calculator has also been included below.

What is Salary Sacrifice Super?

Salary sacrifice is an arrangement whereby you forfeit part of your employment salary in exchange for increased super contributions.

The increased super contributions are equivalent to the pre-tax amount of the wage you have chosen to forfeit.

Salary sacrifice contributions made by an employer are over and above the mandatory superannuation guarantee contributions (SCG) that must be paid by the employer.

The benefit of salary sacrificing is that you are reducing the amount of salary being taxed at your marginal tax rate, while also increasing your retirement savings in the tax-effective super environment.

Superannuation is tax-effective because all earnings from investments within super are taxed at a maximum of 15%, compared to your individual tax rate which can be up to 45%.

While there are advantages of salary sacrificing, there are also some disadvantages, as explained below.

Disadvantages of Salary Sacrifice Super

Salary sacrificing into superannuation has a number of disadvantages.

Salary Sacrifice Contributions Tax

Salary sacrifice contributions are classified as concessional contributions because your employer claims a tax deduction for them as a business expense.

All concessional contributions are reduced by 15% contributions tax when contributed into super.

For example, if you were to salary sacrifice $10,000 into super over the course of a year, only $8,500 would be paid into your account.

The remaining $1,500 is contributions tax and payable to the Australian Tax Office (ATO).

The level of contributions tax increases for high-income earners, resulting in effective contributions tax of 30%.

Contributions tax effectively reduces to 0% for low-income earners, due to the low-income superannuation contribution provisions.

Salary Sacrifice & SGC

The current superannuation guarantee rate that an employer must pay on your wage is equal to 10% of your ordinary time earnings.

By salary sacrificing, you are reducing your ordinary times earnings by the salary sacrifice amount.

This means that you may get paid less in SGC payments, because your employer’s legal SGC obligation is reduced.

However, employers are able to honour your pre-salary sacrifice wage and pay SGC on that amount.

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You should check your employment contract to see what impact salary sacrifice contributions will have on your employer SG contributions.

The 10% employer SGC contributions are only payable up to the maximum superannuation contribution base.

Contributions tax is also payable on employer SGC contributions.

Access To Salary Sacrifice Super Contributions

Another disadvantage of salary sacrifice contributions made to super is that the amount contributed is not accessible until you meet a superannuation condition of release.

The most common condition of release, providing you with full access to your super, is meeting the superannuation definition of retirement.

You can only meet the definition of retirement if you have met your superannuation preservation age.

The definition of retirement is based on your age and employment status.

However, even if you are still working, you can usually have limited access to your super via a transition to retirement pension, provided you have reached your preservation age.

The only other ways to access your super before retirement is through financial hardship (limited access), permanent incapacity, temporary incapacity (limited) or death.

Maximum Salary Sacrifice Super Contributions

As mentioned, salary sacrifice contributions are classified as concessional contributions.

The concessional contribution cap for everyone is $27,500 per financial year.

Therefore, one of the disadvantages of salary sacrificing to super is that you are limited with how much you can contribute.

You should keep in mind that compulsory employer SG contributions also count towards the concessional contribution cap.

However, remember that you might be eligible to utilise your carry-forward unused concessional contribution cap.

Salary Sacrifice Superannuation Fees

Any amount contributed to superannuation will usually increase the fees associated with managing and administering your retirement savings.

While fees are an important disadvantage to consider, the general expectation is that the investment returns received within superannuation will outweigh the costs associated.

Nevertheless, fees associated with super is another disadvantage of salary sacrifice super contributions.

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Withdrawal Tax on Salary Sacrifice Contributions

Given that salary sacrifice super contributions are classified as concessional contributions, they will effectively count towards the taxable component within your super balance.

Taxable components are less favourable than Tax-free components, which are created through non-concessional contributions.

Taxable components resulting from salary sacrifice contributions will be assessable for tax purposes when withdrawn from super in a number of instances.

The instances include pension payments under age 60, lump sum payments above the Low Rate Cap while under 60 and when paid as a death benefit to a non-tax dependant.


Risks of Salary Sacrifice Super

In addition to the disadvantages of salary sacrifice contributions to super, there are also risks associated with salary sacrificing to super.

Non-Payment of Salary Sacrifice Contributions

Despite penalties for employers that fail to make required contributions to super on behalf of their employees, non-payment of super remains a risk.

It is important to understand the salary sacrifice amount which has been agreed upon with your employer.

You should ask your employer how often it will be paid into your super account.

Your employer may choose to make salary sacrifice contributions into your super account at the same time as they pay your wage into your bank account.

Alternatively, your employer may make salary sacrifice payments at the same time that they pay your SGC contributions.

The dates below detail when mandatory employer SG contributions need to be paid into your super account, by law.

Quarter Payment Period Due Date
1 1 July – 30 September 28 November
2 1 October – 31 December 28 February
3 1 January – 31 March 28 May
4 1 April – 30 June 28 August

Fluctuations in Salary Sacrifice Contributions

Any amount contributed to superannuation will generally be invested in line with the investment strategy that you have agreed upon within your super fund.

The investment strategy may have exposure to growth-orientated investments such as shares and property.

A well-diversified portfolio that includes shares and property is expected to produce higher returns than bank interest over the long-term, but this is not guaranteed.

You should review how your superannuation is invested prior to entering into a salary sacrifice arrangement.

You need to be comfortable with the risks associated with your investment options, including but not limited to fluctuations, volatility, under-performance or even loss of capital.

Changes in Super Legislation

Traditionally, changes to superannuation legislation and regulations has worked towards achieving a more equitable and sustainable superannuation retirement system.

You should be aware how future changes in super rules might affect your overall strategy and retirement plans.

Recent superannuation changes have been aimed at aligning the relative advantages that superannuation provides to all Australians.

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Although there is always risk of changes to super rules adversely affecting your situation, it should be remembered that the Government needs to continue to incentivise Australians to save towards retirement.

If there is too much uncertainty or perceived risk of investing in super, people may stop contributing, which could be detrimental to Australia’s five pillar retirement system.

Excess Contributions Tax

If you exceed the concessional contributions cap of $27,500 per financial year, the excess could be taxed at your marginal tax rate and will count towards your non-concessional contribution cap.

You should keep track of your employer SGC contribution amounts, plus your salary sacrifice contributions, regularly, to ensure you are not at risk of exceeding the cap.

Increases in your wage, or bonuses received, may result in higher than anticipated SG contributions throughout the financial year.

The Federal Budget in May of each year is usually a good time to review your salary sacrifice strategy.

Salary Sacrifice Calculator

The salary sacrifice calculator below helps you to calculate the amount that you are able to salary sacrifice based on your wage and the concessional contribution cap.


Chris Strano

Hi, I hope you enjoyed reading this article. If you want my team and I to help with your retirement planning, click here. If you prefer a DIY approach, then check out the SuperGuy HUB. Thanks for stopping by - Chris.

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