Superannuation funds in Australia are increasingly offering retirement bonuses—also known as pension bonuses—to members who transition their savings into the pension phase. These bonuses, which effectively refund superannuation taxes no longer payable once accounts convert to a tax-free pension, can amount to thousands of dollars. However, the rules governing these payments remain complex, and not all funds provide them.
The concept of retirement bonuses has been around for about a decade, with funds calculating payouts in various ways. A common method involves awarding a percentage of the member’s total superannuation balance. Recent months have seen a rise in such bonuses, with Colonial First State, for example, introducing a 0.8 percent flat bonus in August this year.
Brenton Miegel, director of Goldsborough Financial Services, noted an increase in funds offering these bonuses, describing them as a mechanism to refund tax credits. While some industry funds have offered these payments for years, retail funds are now starting to join in. Nonetheless, some financial advisers criticize retirement bonuses as a strategy for funds to retain members’ balances during retirement, potentially deterring members from switching to other funds that might offer better returns or lower fees.
Miegel cautions members against choosing a fund solely based on the bonus, emphasizing other critical factors such as fees, fund performance, tax considerations, estate planning options, and overall administration quality.
MLC began paying retirement bonuses in 2022, recently distributing nearly $31 million to more than 6,500 members. Renee Howie, MLC’s chief customer officer, reported that during the past year, MLC paid out $13.75 million in bonuses, with the average amount around $6,759. The largest single bonus paid by MLC has been $26,500. Howie encourages more funds to offer pension bonuses and suggests members nearing retirement consider strategies like salary sacrificing or making additional contributions to maximize their balances and, consequently, the size of any bonus received.
Most funds that pay bonuses require members to have held an account for at least a year, meaning last-minute fund switches prior to retirement could forfeit eligibility for a bonus.
Some funds, such as AustralianSuper and Cbus Super, use variable factors rather than a simple flat rate to calculate bonuses. Cbus chief executive Kristian Fok explained that payouts depend on both the member’s balance and investment option. High-growth investment strategies, which include assets like shares and property, typically yield larger bonuses due to unrealized capital gains that become tax-free during the pension phase. This year, the average Cbus payout has been about $4,500.
Fok noted that moving to more conservative options that lack unrealized capital gains before starting a pension can reduce the bonus. He also emphasized the need for funds to improve communication with members regarding how these bonuses work and what they represent, encouraging members to consult their own funds for detailed information and tools available to them.
“If we didn’t pass it on it would just go into the pool for members,” Fok said, highlighting that the bonuses are a redistribution of tax savings rather than additional profit.