When it comes to preparing for retirement, many people focus on how much they’re contributing to their superannuation or pension. What often gets overlooked is how those contributions are made — and this is where salary sacrifice can play an important role.
Salary sacrifice is a simple arrangement where you agree to forgo part of your salary, and instead, your employer pays that amount directly into your pension. At first glance, this might sound like nothing more than shifting numbers around, but the benefits can be significant. It not only reduces the amount of tax and national insurance you pay but can also boost your take-home pay or increase your retirement savings over the long term.
While the concept sounds straightforward, the best way to decide if it’s right for you is by having a conversation with your financial adviser. Here’s why that conversation is so valuable.
Personalised Guidance
Salary sacrifice is not a one-size-fits-all solution. The advantages depend on factors such as your income level, career stage, family circumstances, and future goals. A financial adviser can break down what the arrangement would look like in your situation. They’ll help you understand how your pay packet might change, how much you could save on tax, and whether those savings should be directed to boost your pension or to give you more cash in hand.
Balancing Today and Tomorrow
One of the challenges with any retirement planning strategy is finding the balance between enjoying life today and preparing for tomorrow. An adviser can help you weigh up how much of your salary to sacrifice so you’re not putting too much pressure on your current lifestyle while still building a healthy retirement fund.
Maximising Employer Contributions
Employers are also required to contribute to workplace pensions. Depending on your workplace scheme, using salary sacrifice may allow you to take greater advantage of these contributions. An adviser can explain how this works in your specific plan and show you how to make the most of what your employer is offering.
Keeping Pace with Change
Tax rules, contribution limits, and pension regulations can shift over time. What works today may need adjusting tomorrow. By checking in with a financial adviser regularly, you’ll have someone keeping track of these changes for you. They’ll make sure your salary sacrifice arrangement continues to deliver benefits as your circumstances — or the rules — evolve.
Exploring Alternatives
While salary sacrifice can be highly effective, it may not always be the right choice. For instance, reducing your official salary might affect how lenders view your income for a mortgage or loan. It may also impact certain state benefits. A financial adviser will highlight these considerations and, if necessary, suggest alternative ways to achieve the same outcome without unintended consequences.
Peace of Mind
For many people, money decisions come with a fair amount of uncertainty and stress. Salary sacrifice can be an excellent tool, but only if it fits well with your overall financial plan. Speaking with an adviser gives you confidence that you’re making the most of the opportunity, while also protecting yourself against potential downsides. That peace of mind is often just as valuable as the financial gain.
The Bottom Line
Salary sacrifice has the potential to make your money work harder, either by giving you more in your pocket today or helping you build a larger pension for tomorrow. But the real key lies in tailoring the strategy to your unique situation.
Before making any decisions, take the time to talk with your financial adviser. They’ll help you weigh the pros and cons, consider the wider impact, and design a plan that strikes the right balance between your present needs and your future security. With the right advice, a simple step like salary sacrifice can become a powerful tool in your long-term financial wellbeing.
Â
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
(Feedsy Exclusive)
Â
