Supplemental Executive Retirement Plan (SERP) Australia 2025: Guide for Executives

In Australia’s fiercely competitive executive landscape, companies are searching for smarter ways to attract, retain, and reward high-level leaders. Supplemental Executive Retirement Plans (SERPs) have emerged as a standout solution in 2025, offering tailored retirement benefits that go above and beyond traditional superannuation. But how exactly do SERPs work, and why are they in the spotlight right now?

What is a SERP and Why Are Companies Using Them?

A Supplemental Executive Retirement Plan (SERP) is a non-statutory, employer-sponsored retirement benefit designed to provide additional income to key executives when they retire. Unlike standard superannuation, which is capped and governed by strict contribution limits, SERPs offer flexibility and can be customised to reward executives for loyalty, performance, or long-term value creation.

• Attraction & Retention: In a market where executive mobility is high, SERPs offer a compelling reason for leaders to stay put.
• Customisation: Plans can be tailored to individual performance metrics or company milestones, making them powerful incentives.
• Tax Treatment: SERPs are typically unfunded or informally funded, and benefits are generally taxed as income when paid out upon retirement.

In 2025, more ASX-listed firms and mid-sized private companies are introducing SERPs, especially as recent policy shifts put tighter caps on concessional and non-concessional super contributions. For example, the concessional cap remains at $27,500 per annum, and high-earning executives often hit these limits quickly, leaving a retirement savings gap that a SERP can fill.

How SERPs Work: Structure, Funding, and Payouts

SERPs are typically structured as either defined benefit or defined contribution plans:

• Defined Benefit SERPs: Promise a fixed payout upon retirement, often calculated as a percentage of the executive’s final salary or average salary over several years.
• Defined Contribution SERPs: Specify annual contributions by the employer, with eventual payouts depending on investment performance.

Most Australian SERPs are ‘unfunded’—meaning the company makes a promise to pay, but doesn’t set aside dedicated assets. Instead, payments are made from company cash flow when the executive retires. Some companies choose to informally fund the obligation using company-owned life insurance (COLI) or by creating a reserve on the balance sheet.

Example: In 2025, a leading Melbourne-based tech firm implemented a SERP for its C-suite, promising a retirement benefit equal to 20% of base salary for each year of service beyond 10 years, payable as a lump sum or annuity. The plan is contingent on the executive reaching age 60 and not leaving for a competitor within two years of retirement.

2025 Policy Updates and the SERP Landscape

The Australian Taxation Office (ATO) and APRA have not imposed direct regulations on SERPs, but recent legislative changes have indirect effects:

• Superannuation Caps: With concessional and non-concessional caps unchanged, high-earning executives are increasingly turning to SERPs for additional retirement planning.
• Taxation: SERP payouts are taxed as ordinary income in the year received. Companies must manage potential fringe benefits tax (FBT) implications if benefits are accessed before the executive’s official retirement age.
• Corporate Governance: In light of recent shareholder activism, companies must justify executive retirement benefits in their annual reports, ensuring transparency and alignment with long-term performance.

Boards are now more likely to tie SERP eligibility to clear performance hurdles, clawback clauses, and non-compete agreements. This trend is especially pronounced after several 2024 proxy seasons saw major institutional investors challenge opaque or overly generous executive retirement arrangements.

Benefits and Risks: What Executives and Employers Should Consider

For executives, SERPs offer a way to bridge the gap between capped superannuation and desired retirement lifestyles. For employers, they’re a strategic retention tool, but not without risks:

• Pros for Executives:
  • Enhanced retirement income
  • Tailored to personal and company goals
  • May include protections for early death or disability
• Pros for Employers:
  • Incentivises loyalty and long-term performance
  • Flexible design
  • Can be structured to reduce immediate cash outlays
• Risks:
  • Unfunded promises create future liabilities
  • Potential shareholder backlash if plans are not transparent or performance-linked
  • Tax complexity and compliance costs

The Bottom Line for 2025

SERPs are no longer just a US executive perk—they’re increasingly part of the Australian executive benefits toolkit in 2025. As regulatory and tax pressures squeeze traditional superannuation, expect more companies to offer SERPs as a way to win the executive talent war. For both boards and executives, the key is clear communication, robust governance, and alignment with shareholder value.