Retirement bonuses have garnered attention in recent years, as super funds in Australia have begun promoting them as a financial benefit upon transitioning from the accumulation to pension phase. But what do these ‘bonuses’ truly represent? And should you pick a super fund with a retirement bonus?
We explore:
- What are super retirement bonuses?
- What Super funds offer retirement bonuses?
- How are retirement bonuses calculated?
- How do you have a tax efficient super product?
- Should I switch to a fund with a super retirement bonus?
What are super retirement bonuses?
Contrary to their name, retirement bonuses aren’t exactly a windfall. Bonuses essentially entail super funds refunding a portion of the money they’ve deducted from accumulation phase super accounts to meet potential tax liabilities.
Here’s how it works:
When you’re part of a large unitised super fund —unlike in a self-managed super fund or an ETF only super fund—there’s a practice of deducting a percentage of your money annually to cover potential tax liabilities. These liabilities arise from capital gains, realised by accumulation members selling or switching funds. Deductions, aimed at safeguarding the fund’s future tax obligations, accumulate over time.
If you remain within a fund until retirement without leaving or withdrawing, you might end up over-contributing to this tax provision. Essentially, you’ve been taxed along the way without the fund actually needing to utilise these provisions, if you’ve not sold any investments until you reached pension stage. In essence, what’s labeled as a retirement bonus is, in reality, a partial refund of the excess taxes you’ve inadvertently prepaid over the years.
What Super funds offer retirement bonuses?
| Fund Name | Minimum membership period prior to commencing pension |
| Australian Super | Full calendar month |
| Australian Retirement Trust | 12 months |
| Rest | 12 months |
| HESTA | 6 months |
| MLC | 6 months |
| Spirit Super (note merger with CareSuper due late 2024. CareSuper does not currently offer a retirement bonus) | none |
| Brighter Super | none |
| NGS Super | none |
| Telstra Super | none |
| VisionSuper | 12 months, and must have been in same investment option(s) for 12 months or more |
How are retirement bonuses calculated?
Some funds advertise super retirement bonuses in the range of half a percent to 1% of your balance. While this might seem appealing at first glance—imagine a $5000 bonus on a $500,000 balance—it’s crucial to put it into perspective. Keep in mind that you may have contributed much more than this amount during your time in the fund. If a fund provisions 0.25% per year then over 30 years, you would have missed out on an additional 10% return had that money been invested instead. This would mean a bonus of $5000 is only one tenth of what you’ve missed out on over the years.
Fund calculations:
| Fund Name | How is the retirement bonus calculated | Clawback of retirement bonus |
| Australian Super | Individual circumstances | If you withdraw 50% or more within the first financial year |
| Australian Retirement Trust | 0.5% of balance used to commence (excluding funds coming from QSuper self-invest option) up to $9,500 | N/A |
| Rest | Individual circumstances. Online estimate available to members | N/A |
| HESTA | Individual circumstances. Estimates available via telephone | If you withdraw more than 50% of opening balance or close your account in the first 6 months |
| MLC | Subject to change, assessed monthly.1.15% of balance (as of 1 April 2024) | If you withdraw 50% or more within 12 months |
| Spirit Super (note merger with CareSuper due late 2024. CareSuper does not currently offer a retirement bonus) | 0.3% of balance. Subject to change, check retirements. Not available when converting TTR to retirement. Not available when using a death benefit to commence a pension | N/A |
| Brighter Super | Individual circumstances | If you withdraw 75% or more within 12 months |
| NGS Super | Based on retirement bonus rates for each investment option | N/A |
| Telstra Super | 0.5% of balance used to commence pension, up to a maximum $8,000 | If you withdraw more than 50% within 12 months |
| VisionSuper | Lower of 0.5% of: balance used to start pension, balance 12 months ago and average balance over past 12 months. Subject to change, generally annually | Full bonus lost if account closed during cooling off period. 50% of bonus lost if pension account closed within 12 months (except on death) |
How do you have a tax efficient super product?
Over your tenure within a fund, you’ve likely paid significantly more in tax provisions than the bonus you’re receiving. For instance, if you’ve been with the fund for three decades, you might have forfeited 5-10% of your potential growth toward the fund’s tax provisions. A retirement bonus constitutes only a fraction of that amount.
In order to ensure you only pay the tax incurred by you personally (and avoid covering tax liabilities of others), some of the options whereby you can control your own tax exposure are:
- SMSF investing
- Direct share/ETF investing options within super funds
- ETF only super fund
While the latter are rare these are the most accessible way to utilise a ‘conventional’ super fund in a tax efficient manner.
Should I switch to a fund with a super retirement bonus?
Should you be swayed by these seemingly generous bonuses? Proceed with caution. Funds offering substantial bonuses might have been deducting a significant portion of your money along the way, so you may be worse off overall. These bonuses, in essence, serve as means for larger super funds to compete with more efficient self-managed super funds. It’s always worth digging below the surface to understand how much you’ve actually paid to get a bonus.
Instead of focusing on bonuses, another option is to find a fund that ensures your tax is calculated on an individual basis, throughout your membership, and only deducted when incurred. Opt for transparency and fairness over seemingly enticing bonuses that may not truly offset the taxes you’ve already paid.
When it comes to retirement bonuses within super in Australia, knowledge truly is power. Choose wisely, and prioritise long-term financial stability over short-term perks.
Disclaimer: This article is general information only and doesn’t consider any individual’s personal circumstances. You should consult with your accountant to learn more about your individual tax situation.
