Need to know
- Some funds pay retirement bonuses to their members when they move into the 'retirement phase'
- Super Consumers Australia says it's unfair that funds can take back these bonuses when members don't follow their rules
Some superannuation funds pay members a bonus when they move from the accumulation phase of super to the retirement phase.
Also known by names such as 'balance booster' or 'retirement reward', you don't have to claim this payment, as your fund will automatically pay it into your account.
That sounds great, right? But consider it more like the fund returning you money it had set aside to pay your tax bill, rather than gifting you some cash.
If your super fund does not pay this bonus, you might be wondering if it's worth switching to one that does. Before considering that, it's good to know how and why these payments are made, and the pros and cons.
Why some funds pay a retirement bonus
Superannuation funds set aside money to pay capital gains tax for its members in future years. Capital gains are when you sell an investment for more than it cost to buy.
People in the retirement phase don't pay any tax on the investment earnings in their super, so the fund no longer has to pay the tax office this money.
In order to be eligible for a retirement bonus, you generally need to be in the fund for a set period such as a month or a year.
Do all super funds pay retirement bonuses?
No. In an email to Super Consumers Australia, the Australian Securities Investment Commission (ASIC) confirmed that funds don't have to pay a bonus.
SuperRatings research found that 30% of funds paid these bonuses in 2023. But the number of funds making these payments is on the rise.
Retirement bonuses seem to be more common in larger funds. We found that six of the 10 biggest funds (by member numbers) pay a bonus. But this isn't a hard and fast rule – some smaller funds also pay bonuses.
Of the funds in the top ten that don't pay a bonus, Mercer and Aware Super tell Super Consumers Australia that they plan to introduce one. AMP says it has a six-month administrative fee waiver instead for members moving into the retirement phase. Hostplus has confirmed it doesn't pay a bonus.
How much is the bonus?
The amount you get differs between funds. Some try to calculate how much they owe each member. Others give all members back a set percentage, usually using a number set by an actuary.
AustralianSuper, the biggest fund by member numbers, has said its average payment is $2600, while some funds have made payments of more than $20,000.
Experts say it's difficult to determine a precise amount for each member. Ross Stephens from KPMG says the calculation "all has to be done with estimates because it's impossible to do in a precise way", particularly at larger funds.
David Bell, executive director at retirement think tank The Conexus Institute, says funds must weigh up whether precisely calculating the return amount is worthwhile. He explains that funds could conceivably spend more than the bonus is worth to calculate the exact number, ultimately costing members.
What are retirement bonus 'clawbacks'?
In this context, a 'clawback' is when a fund takes back some or all of the bonus it's given you if you withdraw a percentage of your account during a set period (usually six or 12 months).
Some clawbacks also apply if you close your account within the first year of moving into the retirement phase.
But are these clawbacks fair?
"The motivation for retirement bonuses is that the member has accrued these unrealised capital gains by being an accumulation member, which 'disappear' when the member [and their assets] transfer across to the pension phase," says Bell.
A 'clawback' is when a fund takes back some or all of the bonus it's given you if you withdraw a percentage of your account during a set period
Bell questions the fairness of funds taking back the bonus from members who decide to close their account or move to another fund. "It is difficult to see an equity-based consideration for why that member would then need to remain in the pension phase with the fund for a certain period of time to be entitled to the benefit."
"Through a financial lens, it doesn't feel right," he says.
Super Consumers Australia: 'Clawbacks may be anti-competitive'
Katrina Ellis, deputy director at Super Consumers Australia, says once a fund has given someone the bonus, they shouldn't be able to take it back.
"Five years ago, the government banned exit fees from super funds, and the system has worked better for members since this move – people are free to change or consolidate funds without penalty.
"These clawbacks are potentially anti-competitive as they could prevent someone from moving to a fund that better suits their needs because they're worried about losing thousands of dollars."
ASIC tells Super Consumers Australia they expect funds "to provide members with clear and accurate information about the nature of retirement bonuses and any conditions attached to the payment of bonuses".
But Ellis doesn't agree with funds having clawbacks, even if they disclose them.
Many people wouldn't know these retirement bonuses exist, let alone be across the fine print conditions attached to them
Katrina Ellis, Super Consumer Australia
"People may need to access their super to pay down a mortgage, or for urgent bills. Retirement planning and the transition to retirement is already complex enough. Funds shouldn't be making it harder by pulling the rug out from under people who have just retired.
"We know a lot of members are disengaged with their super. Many people wouldn't know these retirement bonuses exist, let alone be across the fine print conditions attached to them."
What the funds say
Super Consumers Australia asked the three funds in the top 10 who have clawbacks why they have this rule.
HESTA says it has "strict rules, designed to ensure overall fairness" with their bonus. AustralianSuper and MLC didn't respond to our queries on this point.
How it works in funds that don't pay a bonus
David Bell from The Conexus Institute says if funds don't pay this type of bonus, "then they are leaving any tax credit in the accumulation fund for other members".
He says this means the retiring members are cross-subsidising the members who are still working and in the accumulation phase, which "could be viewed as creating a member inequity".
"Generally, my personal preference is that funds should minimise cross-subsidisation as much as possible, but in practice it is a complicated area. So, you require good judgement at the board and executive level. However, we are not aware of many funds which have formal frameworks for considering cross-subsidisation."
'All members benefit'
An alternative view is that members indirectly benefit when the fund doesn't make this payment.
KPMG's Ross Stephens says that when funds don't pay a retirement bonus, each member in the accumulation phase pays a bit less tax because the members leaving for the retirement phase have paid some of the tax bill.
"The fund's reserves improve, and all members share in the reserves at some stage," he says.
When funds don't pay a retirement bonus, each member in the accumulation phase pays a bit less tax because the members leaving for the retirement phase have paid some of the tax bill
For example, let's say there are 100 people in a fund, and ten of them move into the retirement phase in the same year. The 90 people remaining in the accumulation phase will all have a smaller tax bill because it's shared between the full 100 people who were in the fund across the year, rather than the 90 who remain.
Potential for 'double dipping'
A potential unfair situation may arise when a super fund first introduces a retirement bonus, where a member could effectively 'double dip'.
Prior to the fund deciding to pay the bonus, members might indirectly benefit from the members moving into the retirement phase and subsidising their tax bill (so they pay less in tax across their working life).
And then that same member could also directly benefit from the fund paying them a bonus if the policy is then introduced.
Super Consumer Australia's Katrina Ellis says funds must ensure the bonuses operate in a way that is fair to all members.
Should you change funds to ensure a bonus?
While it might be tempting to change funds to get a retirement bonus (or a bigger bonus), it's worth remembering the fundamentals of super: the main things you should look for in a fund are strong returns, competitive fees and insurance that suits your needs.
Also, you have to be a member of the fund for a set period before you get a bonus. Similarly, keep in mind that some funds may take back the bonus if you don't follow their rules; for example, if you spend down a percentage of your super or close your account.
Another thing to note is that the bonus counts towards your transfer balance cap, which is the upper limit on how much you can have in your retirement phase account. The cap is currently set at $1.9 million.
Make sure you do your homework if you're going to change super funds.
We're on your side
In more than 60 years of making a difference for Australian consumers, we've never taken ads or sponsorship.
Instead we're funded by members who value expert reviews and independent product testing.
With no self-interest behind our advice, you don't just buy smarter, you get the answers that you need.
You know without hesitation what's safe for you and your family.
And you'll never be alone when something goes wrong or a business treats you unfairly.
Learn more about CHOICE membership today
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.
Stock images: Getty, unless otherwise stated.
