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When you move super into a retirement pension with your current provider, money that was set aside to pay future taxes can be refunded to you and added to your pension account. It could mean thousands more in your account if your fund offers the payment.
Eligibility criteria and calculation methods vary substantially between providers so if you’re planning to start a retirement income stream in future making a wise choice now may set you on a profitable path.
If your current fund is not offering a bonus, it could be worth considering a move to one that does, provided the new fund meets all your other requirements.
What is a retirement bonus?
The bonus is a refund of money that has been set aside to pay tax on capital gains that are expected to occur in the future – when assets that have increased in value are sold.
In the accumulation phase super funds need to pay tax on their capital gains at a rate of 10–15%. Estimated tax is withheld from investment returns, and the ‘after-tax’ return is credited to members’ accounts. This ensures that when assets are later sold, the tax can be paid without dipping into members’ balances or significantly reducing that year’s investment returns.
When you move your money into the retirement phase from an accumulation account or a transition-to-retirement pension and keep the same investment option (or options), the obligation to pay this tax is removed. The underlying assets are moved into the tax-free retirement phase, and when they are sold later to fund your pension payments or to switch to another investment there is no tax on the gain.
This means the money that was set aside to pay tax can be returned to your account in the form of a bonus. Each provider has a different name for the payment, but the principle is the same.
How the bonus is calculated
Super funds all have their own method of calculating a bonus payment, which is explained in their Product Disclosure Statement (PDS). The methods we have found include:
- A flat percentage of your balance paid for all qualifying investment options (balanced, growth etc)
- A percentage of your balance that varies by investment option, with some options attracting a higher percentage than others based on their returns and tax position
- An individual calculation based on your period of membership, investment options and investment switching history.
No matter the method, the amount of bonus payment is subject to change based on the fund’s tax position. There is no guarantee the rates will be the same when you start a pension as they were when you decided to join the fund.
The individual calculation method (described in the third dot point above) is the least transparent but is likely to be fairest and could result in much higher bonus payments for some people.
The amount you receive from an individual calculation is influenced by how long your balance has been invested in the options you hold and the performance and tax position of those options. In general, the longer you have been exposed to an option and the higher your balance, the larger the payment will be. This is because more capital gain will have accumulated for which tax has not yet been paid.
Funds that offer a bonus
We checked the largest 40 super funds in Australia to find out whether they pay a retirement bonus. Of these, ten providers currently offer the payment and their offerings, along with important terms and conditions, which are outlined in the table below.
Click the link in the fund’s name to read more about their bonus offering.
Many of the providers require you to be a member of their fund for a set period before you start a retirement pension to be eligible for a retirement bonus. If you’re thinking about switching to a provider with a good bonus, make sure you note this period and join the fund with time to accumulate your minimum membership before you plan to start a pension.
Minimum membership helps ensure there has been time for taxable capital gains to accumulate that will fund your bonus when you transfer to the pension.
To prevent people from joining to get a bonus and then immediately leaving for another fund once they start a pension, some providers have put clawback provisions in place. Clawback means that if you leave the fund or withdraw a significant portion of your balance quickly some or all of your bonus will need to be paid back to the provider.
|Minimum membership prior to commencing pension
|How it is calculated
|Full calendar month
|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)
|Individual circumstances. Online estimate available to members.
|If you withdraw more than 50% of opening balance or close your account in the first 6 months
|Individual circumstances. Estimate available over the phone.
|If you withdraw 50% or more within 12 months.
|0.85% of balance – at December 2023. Subject to change. See here
|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 retirement bonus fact sheet here. Not available when converting TTR to retirement. Not available when using a death benefit to commence a pension
|If you withdraw 75% or more within 12 months
|based on current retirement bonus rates for each investment option.
|If you withdraw more than 50% within 12 months
|0.5% of balance used to commence pension
|12 months, and must have been in same investment option(s) for 12 months or more
|Full bonus lost if account closed during cooling off period. 50% of bonus lost if pension account closed within 12 months (except on death)
|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
What happens when you’re using a member direct option
To better compete with self-managed super funds (SMSFs), it is now more common for large super funds to offer their members the opportunity to directly choose their own investments on the ASX, including exchange traded funds (ETFs). This is commonly referred to as ‘member direct’ investing.
If are using a member direct option immediately prior to starting a retirement pension, your provider should be able to transfer your holdings directly into the retirement phase, without the need to sell the assets from your old account and re-purchase them in a pension. This avoids any capital gains tax that would occur if you were to sell the investments, transaction costs/brokerage, and market risk when you move to a pension.
You don’t get a ‘retirement bonus’, but you do avoid the capital gains tax that would otherwise apply on the sale of your investments, which gives you the same benefit.
Our research did not uncover any funds offering direct investments that are not able to provide a seamless transfer to a retirement pension but do check with your fund to be sure.
Watch your cap
Retirement bonuses are not contributions, and do not count towards either the concessional or non-concessional contribution caps.
However, the amount you receive will be included in your initial investment into a retirement pension and does count towards your transfer balance cap (currently $1.9 million). If you’re close to the cap, be sure to get in touch with your provider to ensure any retirement bonus paid doesn’t cause you to exceed the limit.