Tax aware investing is not a new concept. In the United States for example, the Securities and Exchange Commission mandated that mutual funds must disclose fund performance on an after-tax basis to help investors understand the magnitude of tax costs and compare the impact of taxes on the performance of different funds.*
Most individuals do not realise that superannuation is a form of tax aware investing. But with more than $4.4 trillion in assets predicted to be accumulated by baby boomers by 2030** and a population fast approaching retirement age, Australia’s superannuation system is currently under pressure.
With the constant changes to superannuation, there’s an opportunity to explore other tax-effective structures and diversify.
Investment bonds: A tax-effective way to supplement your superannuation
Investment bonds—historically known as insurance bonds—are a simple, tax-effective investment option that can deliver clients an additional source of income, as well as provide certainty around estate planning and wealth transfer. Financial advisers play a fundamental role in superannuation planning and are empowering clients with alternative options.
Superannuation will always be considered the primary vehicle for retirement income, and there’s no denying that it is a valuable and effective system. However, we know that tax and estate planning implications for superannuation are likely to change over time.
Stability in tax legislative framework
Investment bonds have enjoyed stability in their tax legislative framework, having remained largely unchanged since the tax rate was aligned to the current company tax rate of 30% in 2001. By contrast, there have been over 30 major changes to superannuation-related legislation and related government policies since the introduction of compulsory superannuation in 1992.
No limits on contributions
Unlike superannuation, where a total balance cap might restrict your client’s ability and willingness to make additional contributions, there is also no limit on how much can be invested in an investment bond upfront. And your client can access their funds at any time, regardless of their age.
Offering stability and flexibility
Investment bonds are a stable, tax-effective solution that offer flexibility, control and a range of investment options to suit your client’s lifestyle needs. Earnings have been traditionally taxed at a maximum effective rate of 30% instead of your client’s personal marginal tax rate.
To complement returns from superannuation, Generation Life offers a regular income withdrawal facility for clients seeking a consistent and regular income stream. This is particularly helpful to a client who wants to fund an early retirement and when access to superannuation and a government pension is not yet available to them.
