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Understanding investment bonds: 8 common misconceptions

Understanding investment bonds 8 common misconceptions

Understanding investment bonds 8 common misconceptions

If you’ve ever found your clients asking:

“How do I build wealth in a tax-effective way?”

“How can I give my children financial security?”

“How can I pass my wealth on to loved ones without burdening them with additional tax?”


Investment bonds are something to consider.

At Generation Life, we’ve taken an innovative approach to investment bonds, launching a new era of products specifically designed to provide solutions to these real-life challenges investors face – especially when it comes to tax.

Despite their incredible potential, investment bonds have sometimes been surrounded by misconceptions that can discourage investors from fully exploring the advantages they offer.

Here, we’ll explore some of the common myths around investment bonds and provide guidance on how they can be used to provide tax-effective financial outcomes for investors.

“Myth 1: You can’t access your money for 10 years”

Investment bonds offer flexibility when it comes to accessing your funds. You’re not locked into a rigid 10-year commitment, although you can maximise the tax benefits the longer you’re invested. In fact, you have the freedom to access your money whenever you need it. At Generation Life, we understand how important this is. But keep in mind, the timing of withdrawals may have tax implications, and longer-term investment horizons can allow for greater tax benefits and the benefit of compounding returns.

“Myth 2: They’re old fashioned”

Don't be fooled by the misconception that investment bonds are antiquated. We understand that the needs of investors evolve, and have developed a new generation of investment bonds designed to meet the needs of today's world. Generation Life’s investment bonds offer lots of investment choice and flexibility to manage, access and if needed, pass on your investments to the next generations. Generation Life’s investment bonds provide a range of investment options and features that can be tailored to meet your personal financial goals. The new era of our investment bonds provide a contemporary approach to wealth accumulation, tax planning and offer flexible estate planning strategies.

“Myth 3: They’re tax-heavy”

If your marginal tax rate is 30% or above, investment bonds may be a great tax-effective long-term investment. While it's true that investment bond earnings are subject to tax, investment bonds can offer significant tax advantages compared to other investment options such as holding investments in your name or through a trust arrangement. Investment bonds are structured as tax-paid investments, meaning that the underlying investments are taxed within the investment bond structure at a 30% tax rate. The actual effective tax rate can be even lower if you use Generation Life’s Tax Optimised series of investment options, where the effective average long-term tax rate could be as low as 12-15%.*.

As an additional benefit, once an investment in an investment bond is held for at least 10 years, there's no assessable earnings for an investor to declare, making investment bonds a powerful tool for long-term tax planning strategies.

Find out more about the the 10-year advantage of investment bonds.

“Myth 4: They have limited investment options”

At Generation Life, we know that everyone’s financial needs and values are unique. That’s why we are dedicated to offering a wide array of investment options to suit the diverse needs of our investors. As part of Generation Life’s investment bonds structure, there are a vast range of investment options for you to explore. With three levels of tax-aware investing benefits and an extensive menu of investment strategies, including diversified portfolios that invest in a range of different types of investments, or sector specific options that invest in fixed interest securities, shares, property and more to suit your desired investment objectives. This flexibility allows you to tailor your investment bond portfolio to meet your individual investment goals within your level of risk tolerance.

“Myth 5: They’re inflexible”

Flexibility is at the core of Generation Life's investment bonds. We provide you with the freedom to adapt your investment strategy to your changing circumstances. You can switch between investment options without any personal tax consequences and make additional contributions at any time.

There’s also the option to make additional contributions up to 125% of your previous year's contributions without resetting the 10-year period for tax purposes. This level of flexibility ensures that your investment remains adaptable, while still benefiting from the unique tax advantages of Generation Life's investment bonds.

“Myth 6: They’re only for the wealthy”

We believe that investment bonds should be accessible to a wide range of investors, regardless of their wealth. Anyone on a marginal tax rate of 30% or above, may consider investment bonds to help manage their tax positions more efficiently – so investment bonds and tax aware investing is not just for the wealthy. They're for all everyday investors who are looking to make the most of their savings and reduce the amount of tax they pay – while also controlling their investments, whether it be to accumulate wealth for retirement or pass onto the next generations when the time comes.

“Myth 7: There are better ways to transfer wealth to future generations”

While many people automatically think of using a will to pass on wealth, there are some pitfalls to consider including the tax impact of transferring wealth and the time and cost involved in obtaining probate for an estate. Other things to consider are the stress and associated issues that can arise due to family disputes and potential challenges to your wishes.

Investment bonds are designed to facilitate the transfer of wealth to future generations seamlessly. They’re structured around your personal wishes – giving you control over how and when your wealth is passed on. Investment bonds can ensure that the right assets, are passed on to the right people at the right time. Generation Life’s LifeBuilder EstatePlanner feature gives you this flexibility to determine exactly when and to who your investments will be passed on, discretely and privately.

When it comes to estate planning, investment bonds offer a unique advantage – your investment can be passed directly to your loved ones without additional tax being paid on the transfer or the need for probate, ensuring a smooth and efficient inheritance process.

A Generation Life investment bond can offer peace of mind and long-term financial security for your loved ones. Through our investment bond options, you can create a solid foundation for your family's financial future.

“Myth 8: Superannuation is the best and only investment option for retirement”

There’s no doubting the effectiveness of the superannuation system in Australia. But recent proposed changes to tax concessions available to people with superannuation balances of more than $3m mean that now is the perfect time to explore investment bonds as a tax-effective alternative to save for retirement. Investment bonds are a complementary strategy to leverage alongside your superannuation that will allow you to build wealth with confidence.

With the proposed changes to superannuation, you could potentially be looking at double taxation – tax on the earnings during the accumulation phase and additional tax on earnings on the balance over $3m.

Unlike superannuation, with an investment bond, your money won’t be locked away until retirement–you can access your funds whenever you need them. You decide when to access your investment with no maximum limit on how much you can withdraw.

Find out more by refering to our simple comparison between superannuation and investment bond.


Speak to your financial adviser to find out more

Speak to your financial adviser today to find out how Generation Life’s new era of investment bonds can help you unlock your financial potential and start your journey towards long-term wealth accumulation, tax advantages, fulfilling retirement and generational wealth transfer.

Are you a financial adviser?

Are you ready to help your clients discover the many benefits of investment bonds? Generation Life’s new era of investment bonds can help your clients to unlock their financial potential and start their journey towards long-term wealth accumulation, tax advantages, fulfilling retirement and generational wealth transfer.

Book a consultation with one of our expert team members today to learn more about our innovative and flexible investment bond products.


*Indicative effective average tax rates. The effective average tax rates represent the estimated  average tax rate over each 12-month period as a percentage of earnings for each 12-month period over a 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.

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