Does your super account pay a retirement bonus?
Sounds great, right? Bonuses always sound great. But what is a retirement bonus and how can you get your hands on one?
Let’s start at the beginning.
Your super has two phases. The accumulation phase and the retirement phase.
The accumulation phase covers when you and your employer are contributing into the fund. The retirement phase (formerly known as the pension phase) is when you start drawing on that money. You don’t have to be actually retired to start drawing on your money, you just need to have reached preservation age.
Income stream
You transfer super savings from the accumulation phase to the retirement phase once you have reached that preservation age and can start an income stream or take out all or part of those funds.
Retirement bonuses may be paid at that point.
While your money is in the accumulation phase, investment earnings are subject to tax, but once you reach the retirement phase, investment returns are not usually subject to tax.
Retirement ‘bonuses’ are not a bonus, but a payment from the money your super fund has set aside to pay capital gains tax on unrealised gains, or investments that have increased in value on paper, but have not been ‘realised’, which is a fancy term for sold.
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 bonus could be hundreds of dollars, but it also could be thousands. Retirement bonuses are usually credited to your account rather than paid as a cash sum.
What’s next?
So how do you get hold of it?
While it seems like a natural step for everyone to receive this bonus as they move into the retirement phase and their tax burden changes, not every fund offers it.
So your first step should be to check your super fund to see if it is in your policy. This will be found in your fund’s Product Disclosure Statement. If it is, good for you, you have some money coming your way.
If not, there are some decisions to be made.
You can weigh up if you want to stay in your current fund or transfer to a fund that offers a retirement bonus.
However, you should also estimate how much your retirement bonus will be – different funds have different terms and conditions – and compare factors such as fees, average returns and the investment risks across the funds under consideration before deciding to switch.
How much?
Your bonus may be calculated by several methods including a flat percentage of your balance or qualifying investments, a percentage of your balance that varies by investment or an individual calculation based on your membership history.
Taking into account those conditions, there is no guarantee for a set amount for your ‘bonus’. It could depend on the fund’s tax position, your level of investment and the fund’s performance.
Do you know if your super fund offers a retirement bonus? Would you reconsider your fund if it didn’t? Why not share your opinion in the comments section below?
Also read: What a comfortable retirement will now cost you
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