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—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.
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.
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.
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.
Generation Life’s Tax Optimised process can significantly reduce the impact of tax on your client’s returns, by reducing an investment’s tax assessable earnings by offsetting capital investment losses against income—brings the tax rate down to less than 15% for many of the growth orientated investment options.***
Through a disciplined tax aware approach to trading when we sell investments, such as shares, our process ensures that we effectively manage our clients’ portfolios to deliver the best tax outcomes. This is an important consideration for any client paying up to 47% marginal tax rate on direct investments.
The compounding effect of this process over time can be significant. The longer you are invested, the better the after-tax outcome.
”Behind every great sportsperson in history is a great coach and similarly, when it comes to finances, investors should enlist the help of an expert to maximise their returns” advises Grant Hackett, Chief Executive Officer at Generation Life.
With a great financial adviser, clients can produce much better performance in terms of overall wealth and build discipline in setting up regular contributions. Financial advice serves as almost a checklist for clients on everything they need to do to maximise after-tax performance, determining the right products and structures for their individual needs, and helping them to plan with confidence.
To find out how you could significantly reduce the impact of tax on your investment returns, speak to your financial adviser.
Help your clients reduce their tax burden and increase their investment returns. Contact our Distribution Managers.
*Source: Securities and Exchange Commission - Final Rule: Disclosure of Mutual Funds After-Tax Returns
**Core Data 2022
***Capital losses refers to losses realised on the disposal of investments that are treated as a revenue loss for tax purposes. Indicative forecast effective average tax rates – these represent the estimated forecast average annual tax as a percentage of earnings for each 12-month period over a forecast period of 15 years. Actual tax amounts payable are not guaranteed and may vary from year to year based on the earnings of an investment option.