MONEY MATTERS | Collect on pay day or tuck a little bit more away?

These people ask for less of their earnings to be paid as cash salary and more to go into their superannuation fund.

Super is both tax efficient and a very effective way to save for retirement.

When a salary sacrifice amount goes into super, as with employer contributions, the tax on entry is 15 per cent.

For the bulk of workers, if the pay had been taken in cash 34.5 per cent tax would have been deducted.

If people are owed $100 by their pay office they should ask themselves would they rather have $65.50 cash in hand or $85 in their super fund.

Young people will likely choose the cash but older workers may recognise the benefit of extra money in their super fund.

Super gives further tax savings for most people because the ongoing income earned in the super fund each year is also taxed at just 15 per cent - which is less than most people's marginal tax rate.

The least painful way to save a lump sum is by regular instalments over a long term.

A deduction each payday is less likely to cause financial pain, and personal spending will adjust to a lower cash income fairly quickly.

Saving for retirement usually involves a long timeframe so workers can invest with a long-term view.

They can utilise growth assets such as shares and property and tolerate greater short-term fluctuations in order to earn higher returns.

The maximum tax-deductible super contributions allowed for each person annually are $25,000. This includes employer contributions.

For example, if a person earns $70,000 per annum their employer's contributions will probably be $6,650 so they can sacrifice up to $ $18,350.

That would be $352 per week which may sound like a lot, but the reduction in after-tax pay will be less, only $231.

If even that isn't affordable a smaller sacrifice amount will be a big benefit long term.

It is now possible to make lump sum personal super contributions, such as at year end, and claim a tax deduction.

This gives more flexibility than salary sacrifice but it is usually more difficult to find a lump sum.

July, the start of a new financial year, is the best time to start a salary sacrifice plan as the maximum amount can be targeted over the full year at the least cost each payday.

There are no contracts so the sacrifice amount can be increased or decreased at any time during the year.

Long term savings plans benefit from the remarkable power of compounding interest.

The total amount saved doesn't just add up year to year, it accelerates more the longer the plan goes on.